I’ve just been doing a budget for 2016. I’ve never actually done a propper budget before, so this is new for me, and it turns out that it’s a great way to banish magical thinking around the subject of money.
My budget is pretty simple – it consists of a google sheets spreadsheet with a few formulas based on one the finance manager at my work shared with me. It lays out all of my predictable spending for the year month by month, and gives me monthly and anual totals. Add to that some guestimates about more variable spending and voila. I also make use of the pocketbook app, which ties into Australian bank accounts and records and categorises all your spending. I’ve used this to get real detailed information about what I’ve actually spent in 2015, and used that to predict my 2016 spending. For example, I’m using my average monthly grocery spend from this year to predict what next years will likely be. I won’t go into too much detail here because I’m the opposite of an expert on it and I’m sure there are hundreds of other pages written by accountants explaining how to do a personal budget.
The first thing I’ve discovered about this experience is how depressing it is. I have debts I’m trying to pay off, and when I actually lay out my finances and work out what I can realistically put into them it will take me several years to be debt free. I’m still working out my exact payment plan, but obviously my income and fixed expenses are limiting factors. I think before I did my budget I could imagine that my future finances would be inexplicably be better “in a few months” and then continue spending exactly as I always have. I could also fantasize about future goals like buying my own home without really considering just how far away that is and how careful I’ll have to be to get there. And I could also view each expense as a “just this month” one off when actually I was paying it regularly throughout the year.
For example, I have been enjoying brightly coloured hair, and getting that done at the hair dressers is not cheap, and requires me to visit about every two months. My annual hair budget, it turns out, is entirely predictable and surprisingly expensive. I’m not saying that I’ll drop that expense, just, now that I can see it clearly I’m making an informed decision about it. It’s not a small indulgence.
Obviously as emotionally difficult as it is to face facts, I think this is a very necessary first step towards having financial security and a plan that works. I’m a single woman with no children and an above average income – there is no reason that I can’t live comfortably and without constant end of month panic and debts that I can never seem to reduce. My financial woes are entirely self inflicted.
The other issue I struggle with is that while I can manage fortnightly pay in my head, apparently I can’t do it for monthly pay. I overspend early on, presumably because I feel like there’s so much money in my account on pay day and I’m not really holding in mind all of the costs I’ll have over the course of the month. I also have a tendency to spend without thinking amounts that seem trivial compared to my income, but of course they all add up. I’ve only recently achieved a comfortable income level, and one of the things I’m finding is a strong pent up desire to just have nice things. I suppose I feel like I’ve exercised restraint for so long that I deserve to treat myself. But actually, I do still need to be bounded by reality.
Which brings me to my point. If you want to change something you have to have a clear understanding of your current reality. You have to really think about it. You may have to lay out all the details in a spreadsheet. Get fully on top of what’s happening. Only then can you identify where you’re going wrong, or where changes will have the most impact. You can see this very clearly if you’re talking about something very much based in facts and numbers like your finances, but it also applies to the less obvious stuff as well. How often do you really cook for yourself and what are the most common meals? Not the stuff you intend to do or aspire to do, but what you actually really do.
If stuff isn’t working in your life, step one is finding out if your perceptions of reality are accurate, because odds are good they are not. You can’t create or implement a plan that isn’t based in reality and expect success, because errors in understanding your situation and environment will a) guarantee the plan isn’t a good one, and b) make implementing it difficult to impossible when you encounter predictable difficulties that you failed to plan for.
Keep in mind that there might be good reasons that you’re avoiding thinking about reality. Accepting that something in your life is in a bad state is depressing and frustrating and we’re psychologically primed to avoid those feelings. It’s so much easier to do your budget tomorrow, and tonight just watch some TV. Forcing yourself to face it is worth it however – because if you create a functional financial plan you will have more money for nice things and less debt to stress about and you won’t always live with that lingering unease about what you can afford and that constant experience of never making headway.
Note: I want to add the caveat that the best budget in the world won’t fix extreme poverty. If your income is very low the only thing that will fix that is somehow getting more income, and that’s not always easy or even possible. If you’re in that situation I suspect you already have a clear view of reality and spend far too much of your time staring it in the face as it is.