Planning your Budget - A Disciplined Approach to Spending and Saving

Planning your Budget - A Disciplined Approach to Spending and Saving

A budget tells you where your money is going, where you can cut back, and where you can save. The budget is the best option but if doesn't work for you, use the simple principle of paying yourself first and spending the rest.

Most people don't like the discipline of a budget - but it does have benefits. Without the discipline of a mortgage you would never pay your home off and without the discipline of a budget you would never save. There's a big stick hanging over you with your mortgage (if you don't pay it, the bank takes the house), but if you don't save there's every chance you will retire poor.

Budget for fun

People say that they find the whole idea of a personal budget to restrictive, to ordered, and that it takes all the fun out of life. Well, this is only true if you don't budget for fan - and many people don't. A budget that doesn't allow you to enjoy yourself is completely unrealistic and will be ignored. That doesn't mean all budgets are useless, just that bad budgets are.

Be realistic

Putting together a sensible, real-life family budget that doesn't specify everything down to the last grain of rice (a guaranteed waste of time) is not difficult. In fact, I've made it very easy for you by including a budget guide at here. All you have to do is allocate a couple of hours to work through it. Sit down by yourself or with the family, fill it out as accurately as you can and, please, be realistic.

Be flexible

A budget should be flexible, so don't despair if your circumstances change, rendering your budget inappropriate. You may change jobs, have a baby, receive a rise, or move house. It's not a problem. Just do another budget. Businesses, after all, fine-tune their budgets frequently. Even if there are no major changes in your life I recommend you review your budget every six months.

'The Damn budget doesn't work!'

How often have I heard that a budget doesn't work? In fact, if I had $1 for every time someone has told me that their budget is a disaster, I wouldn't need to do one myself - the money would be pouring in!

I know for some people that a budget just doesn't work and the main reasons I hear are :

  • I just can't stick to it.
  • Unexpected expenses keep cropping up.
  • It's boring.
  • My life keeps changing.
  • It's just too depressing
  • I'm too tired, or to o busy

If you've tried to budget and it didn't work, ask yourself if the budget was realistic in the first place. If you don't think it was, have another go at it.

Let's face it though, for a large number of people, for all sorts of reasons, budgets have not worked and will not work. So what do you do? You stop flogging a dead horse and switch to ther pretty simple plan of 'paying yourself first'.

Paying yourself first

With this strategy you only have to make one budgeting decision, which is: what proportion of your income can you save? If you reckon you can save 5% of your income, as soon as you get paid and before you do anything else with it, have it put into your selected savings vehicle. You see, if it gets into your pocket it's as good as spent.

Now, you can take your other 95% and spend it any way you like - but don't touch the 5%. The money is your future.

I promise you that after a few months, unless your finances are very tight, you won't miss it. If a pay rise comes along add 1% or 2 % or the 5% before you learn how to spend the money.

Before long, you can build up a very healthy savings habit without a budget. But remember, you cannot spend more than 95% (or whatever your chosen percentage is): no abusing credit cards, no personal loans, no other forms of debt.