The most offensive word in the English language
Posted by Josh Cratchley
Budget, what an absolutely revolting word!
Budgeting has become synonymous, at least in our line of work, with cutting back, reining in or going without. It’s little wonder that most clients start shifting in their seat at the thought of a budget.
In fact, budgeting has less to do with taking and more to do with giving. Control, clarity and direction are all by-products of understanding what you're doing with your money, no matter if you’re the lowest paid or the highest paid Australian.
If anything, control and income are inversely correlated in our experience. If you have $200 to last you a week you are going to think long and hard about how that money is deployed. If you are paid $10,000 per week you are going to spend with little regard to the consequences.
So perhaps budgeting has an image problem.
Perhaps if it was associated with success and not austerity, more people would freely embrace this simple financial concept. It’s these “successful” people, who take out piles of debt, who need to embrace budgeting the most.
Large income + large debt + large lifestyle = financial mess
But if like most Australians this “budget” word is utterly abhorrent to you, what are two ways to give you a little more control without the depressing process of preparing a budget?
Perhaps all you need is to start the process and hopefully your successes will encourage a more permanent behavioural change in you:-
Invest it before you spend it
Saving shouldn’t be an afterthought, it should be the first transaction you make when you are paid. What if you took $1,000 from your account on the day you were paid (every time you were paid) and applied it in a way that matched your circumstances i.e. paid off extra debt, invested appropriately, contributed to super or saved for the kids?
Don’t think you’ve got the discipline? Get your payroll department to split your pay into a savings and a transaction account and throw away the ATM cards to your savings account. The process of saving is far more important than where your savings go.
Or perhaps setup a micro-investment which draws $25 per day from your account and invests in a passive diversified portfolio, then forget about it for 20 years.
Pay yourself an allowance
With the rise of offset accounts in this country, we’ve seen scores of clients who can’t control themselves with these “blank cheque” style accounts. Many people will have their pay deposited into their offset account which is great, but then freely spend as much as they like from this account not knowing if the account is rising or falling.
If you were to break the connection between income & expenditure by transferring an “allowance” on the 1st of the month out of your offset account into your spending account, you would have a finite sum of money to last you until the account was replenished next month.
It’s funny how your lifestyle can adapt to a new level of income if you set the right processes in place to modify your behaviour with money.
No one suddenly starts spending thousands of dollars a week on discretionary items straight out of school, they slowly build up to it over time as their income increases throughout the years. What goes up can come down.
The way you allocate your finite financial resources over time, is the golden goose that everyone is so desperately searching for (not property acquisition). It will pay off your home loan, put your kids through private schooling and build your nest egg for retirement.
Perhaps if more people thought along these lines we wouldn’t be seeing the record number of Australian households in mortgage stress.