People hear “Budgeting” and assume it means you’re not going to have any fun and be forced to not spend on anything but the bare necessities. Not true!
It’s actually the exact opposite. It’s all about making sure you have enough to spend on the things you really want. I don’t like the use the word budgeting when talking to clients because often people switch off. I like to say it’s all about prioritising your spending.
I’ve been helping my client Dave with this recently. He wanted to save for a new car and a house deposit, but also enjoyed going out with his friends and holidays with his partner. Dave found it difficult to achieve all of the above and initially thought that he would have to reduce his enjoyment now to be able to save for the future. As a result of prioritising his spending he’s now able to make space for the things that are most important to him.
I used a 3 step process to help Dave:
Step 1: See Where Your Money Is Going
The first thing we worked on was tracking his spending to find out where the money is going. It’s important to have a process for this that both fits in with your everyday life and is sustainable. For Dave I suggested he use MoneyDashboard, which is an app that links to your bank accounts and categorises you spending for you. That way all he needed to do was login and see where the money was going. This step can be pretty simple, not like the old days when you had to walk around with a notepad and pen and write down everytime you buy a tin of beans!
Step 2: Cut Out The Waste
The next step was to cut out anything unnecessary. For Dave he realised that he had a Netflix and Amazon prime account that he hadn’t used in 6 months. We also realised that he was paying for a gym membership which he hadn’t used in 3 months. Dave cut out Amazon Prime and Netflix but kept the gym membership and started going again.
Step 3: Prioritise What’s Left
The final step was to decide what was most important to Dave and add that to his budget. For Dave, this involved thinking about his regular spending habits and which ones were most important to him. Would he rather go to restaurants for his lunch break at work or have a few pints down the pub with his friends every week? Would he be willing to reduce the amount of takeaways he had each week if it meant he could go on a weekend break with his partner every few months?
As a result of this process Dave stopped spending on things he wasn’t using. He realised that going to the gym was important to him and so he started that back up again. He also sacrificed eating lunch out during the week and ordering takeaways at home in order to be able to go on weekend breaks with his partner and go out for drinks with his friends. He prioritised his spending and was much happier as a result.