Introduction
Learning to budget your income is one of those things where some people have no problem, yet others cannot do it for the life of them. Those of us who find budgeting easy and satisfying don’t really understand those people who can never manage their money properly.
Financial planning and budgeting are the basis of all financial success. Irrespective of whatever financial level you are operating at the principles are the same. I recently watched the Secret Millionaire program where each week a wealthy business person who has made their fortune goes undercover into a rundown area and lives amongst some of the poorest people in the country for ten days. The twist is that they are only given the equivalent job seekers allowance of about 56 pounds, so they have to manage on 8 pounds a day.
Inevitably over the week they get involved in various community and charity projects and find people that they could help financially. Well I love this program, especially at the end when the millionaire presents somebody with a cheque for an amount of money that is generally more than they have ever had in their life. I like trying to work out from their expressions if they have guessed they are a secret millionaire or not, some of them have obviously worked it out and try to put on their surprised face!
There was a couple of interesting finance related things I picked up from watching these programs though. The first was on one of the programs that featured a millionaire lady who had come from nothing into a millionaire in the period of about thirty years. She said she got started when her uncle gave her 5 pounds when she was a child and she saved it. What was interesting though is that when she went undercover she still managed to save money whilst she was living off her 8 pounds a day. She put her savings, which were only a few pounds, into a sock in her sock drawer.She was spending less than her daily budget.
The other interesting part was where a wealthy Scottish business man decided to help out a flailing cafe owner and his wife. They were foreign, Greek I think, and interestingly when they did the follow up segment of the program, when he returned to see how they were getting along, the business had still gone under, in spite of the fact that they were helped out by their wealthy benefactor!
Can you see a pattern emerging here?
The two examples help to demonstrate the one basic fact of financial success: If you want to be financially sound you have to spend less than you have got. If you spend more than you have got you are doomed to financial failure.
Consider these three facts
1. Mr Macawber in David Copperfield by Charles Dickens, purports the concept of budgeting. “Annual income twenty pounds, annual expenditure nineteen pounds six, result happiness. Annual income twenty pounds, annual expenditure twenty pound nought and six, result misery.” Charles Dickens, David Copperfield, 1849 English novelist (1812 – 1870)
That basic rule has not changed since the 1800’s and never will!
Even in the SEO organic search industry which is hugely buoyant at the moment there are still companies going out of business because they are not following this basic rule.
Spend a penny less than you get and you will always feel abundant and this is something we have now achieved. This may seem very evident, but how often do we find we are spending more than we can afford? There are tempting offers or investment opportunities within our grasp every day and it’s difficult to resist when they try to make us believe we might never get such an opportunity again.
Hands up if you are someone who has difficulty controlling your finances?
Hands up if you do not know how to budget your money?
Hands up if you find it impossible to resist tempting offers?
Hands up if you are always overdrawn?
Hands up if you don’t know how you are going to make ends meet for the next week?
If you have all your hands in the air (and your feet!) it’s time to do something about it. (In other words take yourself in hand!!) Please excuse the pun.
The first thing you need to understand is that people who are providing things for us to buy are in business to make money and they want their businesses to grow. To do this they have to increase sales, so they have to make things irresistible to the customers like you and me.
So remember, the next time you are in the red and struggling to pay the bills, and you see something you want to buy, there is some big guy out there who is going to be raking in the profits as you slip further into debt. They are taking your hard earned cash and leaving you penniless so be strong and just say no to the things you don’t really need.
Change of Mindset
I use budgets a lot in my business, and one thing I always budget for is professional tax enquiry insurance because even though you might not have done anything wrong the tax man is entitled to audit you and the cost of the associated professional fees can often run into thousands or tens of thousands, even if your business has done everything by the book.
People who do not budget and find it difficult to manage their money seem to have a particular mindset. For instance, there may be an idea from childhood that being careful with money indicates to the world that a person is miserly. Being reckless then equates with generosity and not being largess. If you are loaded then spending money freely is not a problem, but if you are on a limited income or just never seem to have enough, then keeping accounts is essential.Move yourself into the group of people who can manage their money.
3. One of the ways to change your thinking is to ask yourself, ‘who is the best person to benefit from your hard earned money’? Is it the big companies who are making loads of profit already(Fat cats) paying their executives million pound bonuses, or would it be better if you benefitted from it?
Anxiety about your ability to manage your money and fear of figures may cause you to bury your head in the sand. I had a friend who admitted this to me and when I said I enjoyed the online banking system and being in charge of moving my money around and how easy I found it; she immediately changed her mind set and decided she could handle the online banking system and researched the best way to invest her money to make more of what she had.It is like anything in life that you might not be looking forward to doing, you just have to get on and do it, sometimes just looking at your finances regularly is all you need to do.
Give yourself permission to think that being in control of your money is a practical way to remove the stress you experience around funds. Being good with money is more often than not just about monitoring what is going on closely, so that you can respond to anything that happens that you were not expecting. By getting control over your finances will give you more energy to enjoy life more and as a result you will make more money too.
Guidelines to Liquidity
The most difficult thing to do is to face the reality. When someone is on a spending spree they are out of control and out of touch with reality. The fantasy ignores the hard fact of the cost and the very real consequences of overspending (ie. How it’s going to be repaid).
So the first thing you need to do is keep accurate documentation of everything you spend your money on. At the beginning, if you have not done this before, do not try to change what you normally do, just make a note of everything you spend as you go through the month. Have a cash note book and write down all the things you can think of that you buy. This includes household bills and food, mobile phone, TV. Put a figure in the corresponding column. If you have actual amounts put them in, if not make an estimate. Leave space for the things you don’t remember or even consider expenses. Beer, cinema, clothes even the coins you toss to street entertainers. Categorise it as fun money or entertainment funds.
Every time you take money out of your pocket/wallet/credit card/bank, write down what you use it for. Do this over one month, and by then you will have a fairly comprehensive list of your expenses. Make a total at the bottom of the page and on the opposite page write down all your income. When I first did this I found that one of my largest expenses was shop bought sandwiches every day!
Compare the totals. Have you spent more or less than you receive? Is your life going towards happy or miserable? It is at this point you really need to make a shift in your mindset if you want to gain control of your finances, and move yourself into the group of people who are well off.
Start by being penny pinching to people who want to sell you things. Look around for the best deals and always ask to renegotiate deals. I went on a negotiating course some years ago and the following week I put into practise what we had learnt. I reduced my spending by 350 pounds, just by asking! Most of the time these days, people expect to be bartered or negotiated with and most prices are generally based on the fact that the advertised price is not the final selling price.
Carry only a minimum amount of cash on you so that you are not tempted to fritter away 20 pounds on some impulse purchase you don’t need. Those notes add up fast and before you know it that hundred pounds that was in your pocket is gone.
When you own or work for a business you can put legitimate business expenses through the company. This means they are deducted from the business revenue before tax is paid. My work in 1 way link building takes me all over the country so it is much more tax efficient to run my own business and have the company pay for the travel.
Cut up your credit card unless this is the most convenient way to pay regular items and you clear the balance at the end of each month. Use only one credit card, and find one that gives points for purchases. Whilst it can sometimes be an inconvenience to have to get another card out these points mount up over time and you can claim vouchers to spend in your favourite stores. Personally I don’t like loyalty cars and feel that companies who give points away ought to just provide a discount on the sale price and make everyone’s life easier, but the world is just not like that and it does pay dividends now that I have managed to get past that!
Also find a credit card that will take the full amount by direct debit every month so you don’t miss payments, accrue interest charges and generate a large fine.
Make a list when you go shopping and only buy what is on that list. OK, some things you may have forgotten to put down but make sure you avoid the impulse purchases. Keep a list in the kitchen and only put things on it when you have run out. Use up products in the icebox and freezer to reduce waste and keep spending to a minimum.
Become a thrifty shopper and consumer. Try and use up coupons, saving a few saved pence per purchase can really add up. Searching through clearance sections in stores is another way to save money. You may be pleasantly surprised to see how much you can reduce your bill on your usual grocery haul.
Conclusion
Budgeting is not for the fainthearted. It means fighting the urge to buy what is not needed. It means trying to always find ways to reduce costs and trim down the fat, could you get some of your service for free or at reduced costs by renegotiating with suppliers, for example.
I run my own business and if you are like me the temptation is strong to buy all the latest gadgets. But if you can think yourself into a new mind set you will find it much easier to change the habits of a lifetime. Be sure that all expenses are accounted for when you take stock of your situation. Once you have your finances under control, there will be enough surplus to save and allow to grow for the special events you may want to indulge in in life. Or for when you have to have something repaired or replaced.
If you still have difficulty restricting your shopping habit, take a friend or relative with you on outings. Someone you can trust to steer you away from temptation. Once you conquer your shopping demons, you will be proud of yourself for doing so and feel a great sense of accomplishment. So don’t be overwhelmed, grab that pen and paper start doing your budgets and get on track to liquidity and a happy life.
