Imagine for a moment being paid your full salary in cash. Now, from the stack of money you have to decide what you’re going to do with it. You only have a set amount of money and yet there is probably lots that needs to done with it! You don’t really need to imagine too hard as the One Rand Man has already tried it.
Seeing your money in front of you may make you more aware of the fact that you have only a finite amount (however much or little you feel it is). It can be counted and there is a specific amount.
Now when you think of everything you want to do with it you have to prioritise what you want to spend your money on. And that’s exactly the purpose of a budget. If you want to do home repairs and go on your overseas holiday and entertain people at home; either you have the money to do it all or you don’t. It doesn’t need to be a guessing game and hoping for things to “just work out” is not really an option.
Do you know where all your money needs to go? Start by making a list of everything you want to do and need to spend money on and the prioritise it by:
- Must haves (e.g. monthly debit orders, food & accommodation) – things that you seriously cannot live without
- Nice to have’s – things you would like but can do without
- Debt that must be repaid
- Fun things
Now see if you have enough to go round.
If you don’t have enough money it simply means that you need to cut down somewhere or repriortise. And of course save up for the things you want.
You could look at this for places you may find extra money. One idea would be to renegotiate your insurance premium, and there are many more things to look for. If your situation is severe and you really don’t have enough money to cover your “must haves” then you may need some drastic down scaling. Time to think about things seriously!
If you find that you do have enough money to cover the things you need and want (at least most of them), then well done! Now you simply need to decide what you want to save for and find a system that works best. I keep track of things in Excel and use Savings Pockets.
When deciding how much to spend and where, remember that life sometimes throws curve balls and one must just adapt. So, if you overspend in one area it will affect something else. The pot of money is finite and by spending more in one place you have to spend less somewhere else!
The credit that you have available on your credit card or your bank overdraft is not your money so you shouldn’t even think of using it!
The most important thing to realize is that you shouldn’t rely on next months money that you’re going to earn. We cannot predict the future and when it comes to your money, you only have the money you physically have right now. Work out what you have and what your commitments are, and when you get more money, reassess. You may need to make a plan to improve your cash flow.