Can you imagine how great it would feel to never having to worry about money? Some people think that means having so much money that you can buy whatever you want whenever you want it. If that were so, why would people who inherit money or win the lottery often find themselves broke – or worse, in debt – in no time flat after coming into a whack of moolah? Bad money management has put many a Richy Rich in the poor house.
If you don’t want to worry about money, if you want to be “financially free”, it’s not about having more money than Oprah. Nope. That kind of freedom comes from being in control of your dough. I’m talking about a budget.
I know budgets aren’t sexy or fun. And if you’ve been busy satisfying every indulgence and using credit as your means, a budget can seem like kryptonite. You can choose to continue to see a budget as a pair of concrete boots or you can choose to see it as a wonderful tool that helps you spend your money on the things that are most important to you.
The word ‘budget’ engenders such a fierce negative response that once upon a time, to try and get away from the stigma, I took to calling them “spending plans.” But you know what? It wasn’t the word people hated, it was the discipline, the work, the focus required to decide ahead of time how much you were going to spend, and then spend no more.
Regardless of whether you call it a spending plan or a budget, the point of the exercise is to decide how you will use your money. Having a plan gives you the freedom to enjoy yourself because you don’t have to worry about how you’ll pay the bill when it comes in. You’ll know, right from the start, whether you can afford the purchase you’re contemplating. Or not. And if you really, really want it, you can decide what you’re prepared to give up to get it, whatever IT may be.
Do you know what it costs you to live each month? Some people under-estimate their expenses because they forget the things that don’t occur every month. Did you include your gym fees, your house and car insurance, your contact lenses? Do you pay someone to shovel your snow, clean your windows and carpets or do your taxes? What about your vet bills, the flowers for your garden or patio, your best-friend’s birthday present?
Some people under-estimate their expenses because they actually don’t know how much they’re spending on things like take-out, clothes, and coffee. You’ve watched as I showed people on TV how much money they were spending on the non-essentials of life. It was almost impossible to stop them from backing out of frame as I presented them with the reality of their spending, even though we warned them ahead of time.
When you do all your money management in your head it’s very easy to forget things that will have an impact on your overall financial life. You’re always guessing how much you have left. And you shouldn’t really be surprised when your account is overdrawn.
The only way to have true financial freedom is to know what you have been spending. Then when you make your budget – your plan for how you’ll use your money to your advantage – you’ll have a sense of what you’re going to have to change.
Want to gain a perspective on where your money has been going? Do a spending analysis: track where your money went for the previous six months. Every dollar. Every single dollar. The idea is to not only figure out where the money has gone, it’s to learn more yourself and where you’ve been placing your priorities. This isn’t about shame, blame or deprivation. You don’t have to change anything you don’t want to change. But you should at least know.
If you don’t believe you can find the time to make and maintain your budget: collecting receipts, entering details onto your budget, adding it all up and balancing it out, think about the time you have to spend solving the problems that arise from flying by the seat of your pants. Think about the money you waste on overdraft fees, interest costs and ATM transactions. You’ll have to decide whether you’d rather live life peacefully, or continue waking to the spectre of financial worry rattling his chains at the foot of your bed.