When a person seeks advice on getting the finances into order the first advice is usually to prepare a budget. Next comes the lecture on the importance of recording every expenditure, for ever. That is usually followed by an explanation of the importance of regularly reviewing and analysing expenditures and comparing actual expenses to budget. This is all true and is the best way to budget. However the effort needs to be worth the reward. This is worthwhile for a company due to the sums involved.
Many people find this very tedious. They will not do all this recording to save a few extra dollars a week. The extra effort really may not be worth the extra savings given the size of the budget. I will use this little essay to explore alternative ways to manage a budget.
The purpose of budgeting is to manage your income, spending and savings. The budget is a means to an end. The most important things are quality of life and regular savings. This requires decisions about spending to maintain lifestyle and about the lifestyle one can afford. It requires decisions about how much one can save. One must develop good spending and saving habits. As spending flows from lifestyle it follows that one must develop good lifestyle habits to maintain those good spending and savings habits. The important thing is maintaining those good habits. Recording, does not of itself, maintain those habits but it is a means of monitoring observance of good habits. There are alternative means of monitoring and controlling spending habits to maintain lifestyle and savings. I will explore these alternatives later.
First, one must decide what is important to ones self to prioritise spending and to set savings goals. A lifestyle is a collection of needs and wants, some cost money and some don’t. The general idea is to maintain a satisfactory lifestyle by adequately meeting these needs and wants with enough cash remaining to meet savings goals.
Now, to answer the question of how to save without recording everything. Your weekly pay packet must cover your weekly expenses and have money left over to cover savings and irregular and periodic expenses such as utilities, clothing, christmas presents and so forth. The general idea is to plan to have a particular sum of money left over at the end of each week to meet your savings goals after covering all these other expenses. It is not sufficient to simply save whatever happens to remain at the end of the week as that does not impose any financial discipline or inculcate any good habits.
Work out how much you can save each week to meet your savings goals, after covering your weekly and periodic expenses. Put this amount aside each week into a separate savings account so it can be accumulated and invested. Work out the amount you need to set aside each week to meet your periodic expenses. The remainder is the sum you can spend each week. Work out your weekly budget breaking it down into your daily expenses and your weekly outlays such as rent and weekly bus tickets. You may need to reconsider the amount you can save if your weekly budget is unachievable, or if it allows more than you need to live a life of frugal comfort.
Stick to the amount you are allowed to spend each week and never take any of the money back from your savings and investments. Thus your investments will accumulate over time without you needing to spend your days worrying and recording everything. Regulate your lifestyle habits to regulate your spending.
You will need to make some decisions about what is important to you, particularly regarding your standard of living. Are you content to live in frugal comfort or will you plump for a more lavish lifestyle with reduced savings. Whatever you decide will have long term consequences for you.
You will need to go through all of your expenses to find economies. Deciding what one will eat for the week allows one to draw up a shopping list to buy only what is needed and to ensure ones purchases are economical choices driven by forethought rather than the whims of the moment. Planning your meals for the week allows you to prepare a list of the ingredients you need and that is your complete grocery shopping list for the week. Shop around to find consumables at more economical prices. Reconsider your needs and wants. Trim the extras and indulgences and cut out the things you don’t really care about. For example, if you have subscription TV but rarely watch it then consider cancelling it.
I have set out a detailed and step by step method to get your budget up and running. Please see my tab “How to prepare a budget”.