Nobody likes a budget, in fact, in my experience, a major reason why people are reluctant to seek the services of a financial adviser is that they are fearful of have a budget imposed upon them. In addition, the hardest part of obtaining information we find when working with a new client is obtaining reliable information from them about what they spend. Let’s be honest, nobody likes being told that they are spendthrifts or that they spend too much on booze, or clothes or shoes or cars.
Restrictions on spending is a secondary part of budgeting in my view, or at least in what we use your budget numbers for. The most important part is knowing what your current reality is without passing any judgement on that reality. If you have a mind to we have a few benchmarks on normal household expenditure which we can run across your numbers, but in the end, it’s your money and how you choose to spend it is up to you.
In any journey you have to know where you are before you set off, otherwise, you’re going to get lost. So what is it that we need to know about right now, before we can plan our next step.
The first principle is you need to Spend Less Than You Earn. This might seem obvious, but if you can’t do this even I can’t help you. Almost everything we will recommend in connection with improving your financial reality will involve spending some money. It could be in reducing debt or obtaining personal insurance or setting aside money for retirement. If there is no surplus in your current reality, and you are certain that none can be created, then you are stuck with what you have, but are you really certain?
With this in mind, the EARN side of the equation is pretty easy to work out. Less so if you are in a business, but for most, income is pretty consistent month on month year on year. But how do you know whether you are spending more than you earn? You need to set up some sort of mechanism to detail where your money goes. How much detail will really be up to you, but you need to get a good grip on this before we start on anything else. If you don’t want to call this a budget that’s OK.
What we recommend is that you pay as much as is possible by card (preferably a debit card not a credit card). This makes it easier to track your expenditure using one of the many excellent tools which are available on your phone or other devices these days. Record keeping can be a pain, and one more reason not to focus on your spending, so the easier we can make it for you the better.
Once we know what you spend and where, we can make some active decisions. It might be that your spending is out of control, or it could be that you need to earn more. Either way, we now have the first step in getting control of your financial world.
A budget is often perceived to be a mechanism by which a client feels that they can’t do what they want to do. It really does get down to priorities, are you prepared to make some changes to your finances now in order to improve your situation?
When we think about budget planning we think about a budget as a tool which can be used to work out what you could do if you wanted to, whatever that might be, then we can leave it to you to decide how badly you want an alternative financial reality and whether you are prepared to spend some of your money to get it. Without information, we can only be making decisions in the dark.