Budgeting comes up as one of the ‘must do’ items if you want to be good with money. You must have a budget. You must stick to a budget. Whatever your budget of choice, there’s a zero based budget, a 50:30:20 budget, a 74:26 budget (really, in case you couldn’t tell, you can have any type of budget you want…).
But what problem does budgeting actually solve? 🤷🏻♀️
Perhaps a more useful question to ask is, do you know where your money is going?
A budget tracks money coming in and money going out. For most people, money coming in is pretty straightforward and it’s the money going out that tends to be more challenging.
These days there are many ways to keep track. Your bank might have an app, you can use a service such as Mint, or DIY with a good old spreadsheet.
Knowing is a solid first step, but what’s the point of keeping track?
Are you looking to make changes?
Um, probably yes?
Now here’s where it gets interesting. Do you start with increasing your income or decreasing your expenses? Do you start somewhere small or tackle something big? There are so many options. But what’s the bigger picture? Where should one focus?
Let’s think this through…
#1 Increase income vs decrease expenses?
No one is stopping you from doing both, but expenses are more likely to be within your immediate control. Not to be facetious, but it’s probably easier to cut back on buying chocolate than it is to get a second job.
#2 Small vs large expenses?
Start at the top and work your way down. If you’re going to be putting in the effort, might as well try to maximise the impact.
#3 Eliminate vs substitute?
It takes less brainpower to cut things out entirely rather than trying to find an acceptable substitute. Eliminate first.
#4 Automate vs pay manually?
Automate the necessities e.g. mortgage, debt repayments, insurance, utility bills.
But make everything else manual to increase friction. Next time you pay for something, take it as an opportunity to reconsider if you’re getting your money’s worth.