Budgeting: Spend Less Than You Earn and the Result is Happiness

“Annual income twenty pounds, annual expenditure nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty-pound ought and six, result misery.” – Charles Dickens
The above quote by Charles Dickens captures the essence of this article. Spend less than you earn and the result is happiness! We all know this to be true, so why do some of us struggle with cashflow?

​The answer lies in the speed of modern-day banking and delayed debt payment structures. With the ability to immediately transfer money, pay direct debits, irregular bills, etc., we quickly lose track of our dollars and cents.
 
After paying your regular bills and debts, any surplus is savings, right? Well yes, temporarily, but then you receive an irregular bill or unforeseen expense which you may not have budgeted for. You now start dipping into savings or taking on more personal debt to cover the costs. Taking on personal debt begins a vicious cycle of increasing interest costs, in turn reducing your spare cashflow.
 
So how then does one gain control of the cashflow?
 
Recognise your expenses
Trying to determine every expense in the last 12 months is hard. This is where you need to turn to your online banking portal or statements for help. It’s easy to be in denial to oneself on what you think you spend on something, but the true answer lies in your history of spending. By using the raw data of your bank statements, you can start compiling groups of expenses and identify true costs. Luckily there are apps that can do this for you. The end goal is to recognise the true cost of your expenses. You can now breakdown your expenses into a weekly, fortnightly, or monthly cost allowing you to see what Dickens mentions; are you living within or above your means?
 
Prioritise your cashflow
Well, you now know how much you spend. Is it less than your total income? Is it more than you thought? You now need to prioritise any necessities over the luxuries. Review those hidden direct debits that have been ongoing for the past few years. Your priority expenses are where you truly see value in spending your money.
 
Create a plan (budget)
Ok, so you know how much you want to spend and on what. You also know what you need to spend on the necessities. Now you know how much you can either save or spend on those non-discretionary costs. It is best to prioritise the savings (unless you’re paying down personal debts) and then focus on the non-discretionary costs. Have a plan for ‘why’ you are saving otherwise sooner or later you will dip into them. Is the saving part of delayed gratification or simply to save? The final test of a workable budget is that you have a surplus when deducting expenses from your income (this might be small initially). If not, return to step 2.
 
Now stick to it
You are proudly looking at your laminated budget taped to your fridge. Job done, right? Wrong. You need to put the budget into action. Too often we see people take home a budget and think they have done the hard yards. It’s the equivalent of buying a gym membership but never actually going. What you need to do now is setup bank transfers to match your expenses. Actively work to reduce the extras. You may even need to create new accounts to transfer money for regular expenses or savings. It needs some thought and effort to make that spreadsheet or printout work.
 
Review your budget
The last step of the budget is to monitor your costs. We are creatures of comfort, often we will creep back to habits which may not be our priority. You may also find that as you drop expenses like reducing personal debts, you will release cashflow. At these times you need to review where you want to push this surplus cashflow.
 
The above steps are a simple starting point for anyone who is trying to gain control of their cashflow. I acknowledge these steps are quite broad-brush and encourage anyone reading this who needs help to seek out professional advice (i.e., see your financial adviser or contact us at Evergreen on (07) 4766 9688). The ability to control your cashflow is an immense stress relief and allows you to focus your efforts on other, perhaps more rewarding pursuits such as family, hobbies, etc.