“I read the Barefoot Investor Book – I should be able to budget now…”
At Bright Spenders we LOVE the Barefoot Investor approach to debt, emergency funds and investing in index funds.
What we see people finding tricky is the generic nature of Scott Pape’s one-size-fits-all approach. While it might work okay for regular wage earners, if you have any kind of unpredictability or irregularity to your income then his approach can be pretty challenging to follow.
If you’re self-employed, freelance or working a few casual jobs and receiving varying amount payments into your account every single day, and you have to factor in GST and PAYG then things can get pretty complicated trying to figure the exact amount for each payment to transfer into your Smile, splurge and Mojo accounts.
And if people can’t figure something out, they tend to just do nothing. And that amounts to financial suicide.
If you feel like you’re a bit of a loser for not being able to follow the BFI approach then I want to reassure you now that it’s not you! It’s the system that just doesn’t work for everyone.
Many of us are working more than one job. Many of us are self-employed or freelance these days and our incomes is erratic at best. It’s times like these when it really pays to get someone to help you set up a customised system. Once you have a customised system in place then life with money becomes a whole lot easier.
As long as you have a really good handle on what your expenses are (including all regular predictable bills, unpredictable expenses like medical costs and car repairs and weekly expenses like groceries and fuel) and when they need to be paid, then you can use a Spending Planner to do all the number crunching behind the scenes and tell you what your bank balance needs to be on any given day of the year, so all you have to worry about is focusing on income generation to make sure you cover it all.
Case Study – Julie
Julie struggled to apply the concepts of the BFI even though she was enamoured with the approach the first time she read it. While she earned a pretty stable government department wage, she also had a number of investment properties that each had variable incomes and expenses and really wasn’t sure how to apply the BFI concepts to her more complex finances.
In the property downturn, and unstable rental market, she was forced to use more of her wages to cover the costs of the rental properties and she was worried that she might lose them due to financial mismanagement. Once she got her Spending Planner up and running she could see her finances clearly, and knew exactly what she could afford to live on without sending herself backwards, and it was a huge relief.
“Now that I have the tools to take control and banish the stress, I forgive myself completely and I am so excited about managing my financial future,” Julie said.
It’s really important to get a handle on your expenses, because once you know exactly what your expenses are then it’s much easier to know whether your income is covering your expenses plus a bit extra, or not. We’ve created two tools that will really help you with this step of the process:
- Our Snapshot tool (which will give you an overview of a year’s worth of expenses so you can easily see your total annual outgoings compared to income).
- And our comprehensive 6 page Transaction checklist, which will walk you through absolutely everything you could ever spend money on, and will prompt you to be thorough in this crucial information-gathering part of the process. This is the first part of the process that we guide clients through to get them greater clarity about what their total expenses are.
For Business Owners
If you’re a business owner then it would be wise to do a separate checklist and Snapshot just for your business, so you can see clearly how much you can realistically draw out of the business in personal drawings without harming your business. Then you’ll know how much you can draw as a wage and apply that to your personal snapshot too.
Once you have a clear snapshot then you need to start putting those expense and income transactions into a spending planner for the next 12 months. The spending plan, unlike a budget, factors in time and allows you to be able to see the fluctuations in your account balance for the year so that you can predict any shortfalls or surpluses of cash, and inform your spending decisions.