If you’re anything like me, then drawing up your personal budget comes somewhere far down the list of “Things to do” – somewhere between “Service the dishwasher” and “Clean the gutters“. I’ve thought about this question ad nauseum – why do we as intelligent, rational thinking human beings avoid preparing our budgets? How is it that we find enough time to complain about our financial situations, but we don’t have enough time to sit down and draw up a budget? It’s a well-researched and accepted fact that people who run a monthly budget are more in control of their futures, spend less recklessly, succumb to impulse buying less often, are less easily trapped by marketing & advertising campaigns, generally have emergency funds in place, have less debt and are more positive about their futures than people who don’t. And yet, in light of all the research out there, people still avoid preparing a budget as though there is some contagious ailment that can be contracted by merely opening up a spreadsheet. It could be that ‘money decisions’ are in effect ‘life decisions’, and emotions don’t fit into a spreadsheet.
I don’t know about you, but just the word ‘budget’ conjures up images of some dodgy motel on the outskirts of town. The words seems to imply something less - less freedom, less fun, less quality, a lesser lifestyle, less happiness. We’ve been raised to believe that a ‘budget’ means tightening the belt, restricting our spending, down-scaling, doing without luxuries and somehow living a poorer quality of life. Preparing a budget should be the punishment of the reckless spender, the innumerate masses or our best friend who’s an impulse shopper, not so? Being cornered into a position where you finally succumb to the agonising and humiliating task of drawing up a budget means you’ve somehow reached financial rock-bottom with the noose of debt tightly wound around your neck, and the only glimmer of light at the end of the dark tunnel of gloom is…..the BUDGET!
The logic just doesn’t make sense, though. If countries, governments, companies, trusts, schools, charities and churches all run and operate perfectly respectable budgets, why is it that the Personal Budget has received such bad press and limps along like the uninvited poor cousin? Perhaps the answer is that the Personal Budget is just that – it’s personal. It’s about us. It’s about our lives, our children, our spouse, our lifestyle, our choices, our dreams, goals and desires. The reality is that drafting a Personal Budget can take a lot of courage and can involve a lot of emotion (especially if you’re married). Preparing a budget is not just about the numbers. In fact (and especially if you’re operating your budget on an Excel spreadsheet), the numbers are the easy part. It’s quite simply a matter of what comes in, what goes out and how much is left (if anything!). The agony of preparing a budget is that it goes to the very core of us and demands that we document essential information, make important financial choices and face up to life-changing decisions. In many cases, drawing up a budget leaves you with only two answers – (i) the logical answer and (ii) the “allow me to sleep at night” answer. And when you consider all of this, it’s no wonder that humans opt for the easier, less emotional, less personal option of not preparing a budget at all!
Undertaking any financial planning exercise without a budget is a futile exercise. In fact, it’s one of the very first things we ask our clients to do. In our years of consulting, we’ve managed to identify the top reasons that people avoid budgeting:
- They don’t want to know how much they spend: Ignorance may be bliss, but you’ll only enjoy it for a short while. Not knowing what you’re spending your money on is just reckless. But more importantly, ignorance robs you of knowledge. And lack of knowledge robs you of power. Simply put, ignorance makes short work of making sure you have absolutely no control over your financial future.
- They don’t want to know what they’re spending their money on: Many people can account for how much they spend each month, but they can’t account for exactly what they spend their money on. To be quite frank, not knowing what you spend your money on is just as bad as not knowing how much you spend. Ignorance is ignorance, no matter which way you look at it.
- They fear that they don’t understand money and finances: I dealt with this issue in my previous blog entitled ‘Are you scared of money?‘. We’ve dealt with literally hundreds of clients who genuinely have a deep-seated fear that they won’t understand their finances. If that’s the case, talk to your financial planner. We currently manage the personal budgets of many of our clients on their behalf, and they really appreciate it. After helping them with their budgets for a few months, we slowly hand the budgets over to them as and when their confidence grows. You can overcome your fear and there are planners out there who would love to help.
- The don’t believe in the value of a budget: Sure, it’s hard to convince some people of the value of a budget, especially when they perceive it as a threat to their existing lifestyle. These people need to be convinced that having a budget is synonymous with attaining power and not relinquishing it!
- They’re scared to confront major life decisions: Yes, unpacking your finances and staring at the cold, hard facts can force your hand and pressure you into making some tough decisions. But the reality is that you’re probably going to have to make these tough decisions (or even tougher decisions!) at some point, so isn’t it best to make them together with a financial planner who is able to temper the emotions that tend to unravel in these situations? (If you’d like to download our budget template, please click here and follow the links).
In many instances, preparing a budget forces couples to confront issues in their relationship that are causing stress, anxiety and marital tension. Through experience, we’ve seen the incredible value that can be gained where both partners in a relationship take their joint budget seriously. Whilst money itself has no power per se, it can be used within a relationship in such a way that it leads to mistrust, dishonesty, selfishness and divorce. What many couples need to recognise is that, after physical survival, a family’s emotional survival depends on financial stability and tranquility.
A budget is an under-rated, under-utilised, highly effective and incredibly powerful tool that can be used to map your future clearly, help you make informed decisions, take control of your finances and secure your family’s well-being. Make the mental shift. Far from being a necessary evil that restricts and inhibits your lifestyle, a budget is an essential good that has the power to set you free financially.
Have a blessed day.
Categories: Lifestyle Financial Planning