The best piece of budget advice that I was ever given was “to pay yourself first.”
What does this mean? It was my first casual job after school and I was elated with my meagre pay check – my head was already filled with ideas of where I could spend it. Pay yourself first means to transfer a set amount into savings each time you receive some money, then use the rest to live and play. The more you pay yourself as you go through life, the more financially secure you will be in your later years. The best thing about this approach (apart from the magic of compound interest), is if you never get use to spending the money, you will never actually miss having it.
The reality is, very few people have gotten wealthy without a budget. There is a very good reason why successful businesses have a budget and use it to plan for future activities – it increases their chance of longevity and prosperity. When it comes to our personal lives, a sound budget lets us achieve more of the things that we want in life, but without all the stress. Whether it be a new car, a home or a holiday – a realistic budget (and some discipline on your side), will help you set goals and achieve them, without amassing additional debt and with the confidence that you will be rewarded for being proactively financially astute.
Budgets not only help keep you focused on your goals and minimise debt, they also help you prepare for emergencies. Life is filled with unexpected surprises (some better than others) and this is why every budget should include a “get out of jail fund” to help pay for any surprises that pop up along the way. Some people already have funds available that can be allocated for this purpose, others need to start to transfer a set amount each pay until an adequate amount is sitting in a reserve. A budget really helps determine the ideal amount required in your “get out of jail fund” and importantly, it will help you get there.
There are lots of budgeting apps available and they can be useful. While they are good at identifying bad spending habits (some people are very surprised at how much they spend each month on bottled water and takeaway coffees), their approach is reactive – the money is already spent, you can’t get it back. If you want to get ahead financially, you need to be proactive. A plan and a budget that is based on your personal needs and goals will provide a structure to maximise your cash-flow. While apps present an overview of where you spend your money, they lack insights and tend to be generic. Where you currently spend your money is just one part of the equation. Should it be allocated to other areas? What is happening to the money you save? If you suddenly got injured or lost your job, how long could you continue to pay rent/mortgage and your basic living expenses?
The good news is, budgets do not need to be complicated. In fact, I highly recommend that budgets should deliberately be kept simple. A successful budget also needs to be honest and realistic. If you are serious about saving for a specific purpose or building longer-term wealth, there will be some things that you will need to forgo but it is important in the budgeting process, to identify areas of your lives that are must haves and are non-negotiable. Finally, having visibility of where your money goes will assist you in managing your budget and making adjustments if necessary.
Having a budget is a great step in the right direction but to make the most of your savings, you also need a plan that is focused on your longer-term goals and provides a pathway with strategies detailing how you are going to get there. Making the right choices can be difficult and very costly when the wrong ones are made. Seeking expert advice not only benefits the recipient, there is a ripple effect. Many people with very humble beginnings have successfully built wealth over the years with a tailored strategy, a realistic budget, support and advice from the right people; They have left wonderful legacies for their families, been able to help others, enjoyed travelling and retired with confidence.
If you too would like to thrive financially, contact me today.
I look forward to hearing from you!