Budgeting is often considered the same as a diet, as both consist of avoiding having the things you enjoy and cutting out items you want in life. This can be difficult when you enjoy your lifestyle and struggle with the thought of living with less. However usually with budgeting, you would consider it when life is financially challenging and you are looking for ways to cope. Budgeting should not be a reactive process but proactive and one to be practiced all the time.
To build wealth you would have to reduce expenses and increase income as well as make your money work for you through compounding. Budgeting is a part of this process, where you are monitoring your money so you will make sure that a certain percentage is placed for wealth building and you have a healthy cashflow to pay expenses, have money to invest and money for emergencies. How do you maintain the momentum to keep managing your money so you can maintain a healthy cashflow? Budgeting is structure. Structure is a normal part of life such as keeping your calendar working for you. As your calendar will help create structure so will budgeting. There are many strategies for budgeting such as the zero budgeting where there is no money left and every cent is for a purpose including in an emergency account, and there are many with percentage such as 50/30/20 percent where 50% is for needs, 30% is for savings, investments including retirement and emergency fund and 20% is for you. You can tweak the percentages to suit you. Another strategy is paying your small debts first so you feel successful in money management and then pay the bigger ones as you go, which is called snowballing. The strategy will depend in how you think, your momentum and past history. If you have a history of struggles you may lack momentum and belief that you can do it. Below is a list of cognitive bias that with awareness can help you stick to your budget and improve performance. Decision making Think of the way you make decisions and how to maintain self-control. You would need to wait for things and delay gratification when managing money. Delaying gratification is exercising a part of your brain that would take getting used to. It may be learning to ride the wave of urges and other unhelpful emotions that may cause you to spend on items you could live without. Create a positive reinforcement when waiting to enjoy your wealth. When you have maintained your budget, reward yourself with an activity that is within your budget and enjoyable. Decide on an amount you would reward yourself each week and enjoy staying in the black. For example, you may decide to save $100 per week and reward yourself for 1 hour every Friday night pampering yourself. Shift perspective Instead of focusing on the budget think about the cashflow coming in and building your wealth. Cashflow is king and the thought can be the driving force in changing your habit. Additionally focus on living the best life possible with what you have. Feel grateful for what you have and reward your achievements. Another perspective to shift is to realise that most people who have fancy cars and live an expensive lifestyle also have a mountain of bad debts. Bad debts are ones you can do without and where the assets depreciate. Good debts are ones where your assets appreciate. Money management can be a fun and rewarding experience because with enough financial literacy and support you can navigate the world a lot better, learn how to support yourself financially, become more independent and cope with life challenges such as leaving domestic violence or inflation. Disclaimer: The information provided above is not financial advice but intended for general information only. If you need help with improving your financial literacy and support to improve your financial behaviour and mental health, contact us today. For specific financial advice you can reach out to a financial planner.
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Do you have the financial resilience to cope with the high inflation rates? Do you have enough financial capability to cope with the changes? High inflation rate is a stage in life that we don't always think about. It is life uncertainty that requires reviewing your finances and coping emotionally. It is helpful to prepare rather than react and this can be a life lesson for the future. Often people are just surviving living pay cheque to pay cheque and believe they don't have enough savings to cope with the increased costs of living. Often the belief can be true but finding ways to increase income and reduce spending can help. Saving 10% of your income to pay yourself first and having an emergency fund is a helpful strategy to cope with this challenge. However emotional resilience and the ability to cope with distress can be helpful if you are feeling the financial pressure. On the other hand knowing the financial strategies to help you pull through will also help. This may include finding a side hustle, asking for a raise, cutting down incidental costs you can live without for a while, asking adult children to help financially by paying board money to teach them life skills and looking for government incentives and comparing utility bills can help such as electricity bills to find cheaper options. Often changing insurance companies will also help as many will provide discounts so you can become their customer. Emotional resilience is thinking differently to help cope. For example, you may decide on what you can do to manage the situation such as the strategies I provided above, seek help from a financial counsellor or advisor or review your budget. Financial counsellors can help advocate for you when in debt and financial advisors can help with reviewing your current situation and planning for the future. Financial counselling is reactive while financial advisors are proactive. Financial therapy involves mental health counselling and financial literacy to help cope with the distress and learn strategies to cope. Think about how you can cope rather than not coping, stay positive and hopeful, and write down a list of financial strategies to improve your situation. Coping with distress is also helpful. Distress is not an easy emotion to sit with as it can be uncomfortable but I'm sure most of you have hopefully learned that strategy with the uncertainties Covid-19 created. Body scanning where you focus on the emotion in your body and sit with it as well as mindfulness. Mindfulness is about being aware of your feelings and thoughts but gently shifting your awareness to your senses such as what you hear, see, touch, taste and smell. Mindfulness can be a way of life rather than a strategy and a practice that is helpful for everyone everyday. Find your own way to cope with distress and review your finances to manage these hard times and before you know it, you will adjust and life get easier to manage. Disclaimer:
The information provided above is not financial advice but intended for general information only. If you need help with improving your financial literacy and support to improve your financial behaviour and mental health, contact us today. For specific financial advice you can reach out to a financial planner. Financial literacy is teaching about finance. It includes teaching how to budget, investment strategies, retirement planning, estate planning, debt management and compounding.
Once you have knowledge about finance you then may need support to help improve your decisions around how to spend and make money. For example, hoarders have trouble with acquisition of goods and people who spend less time with their family and work too hard may have trouble with enmeshment with money. Your life experiences, your past, your attitude, your knowledge about finance, motivation, stage of change, and your life stage can influence your decision making in how you accumulate wealth and spend. Give yourself the time and space to get to know about finance and what gets in the way of have a better relationship with money. There has been considerable debate about the gender gap with superannuation where females are lagging behind males. This means that females will retire with considerably less superannuation than males. However factors such as financial literacy, values, age can influence why the gap occurs (De Zwaan, Brimble, & Stewart, 2015). Therefore, working with these factors may help mitigate the gender gap in superannuation.
For example, older individuals and those with a self managed super fund (SMSF) are more engaged in superannuation (De Zwaan et al., 2015). Financial literacy also plays a role as it will encourage the user to explore choices rather then the default option or their current one to receive a higher rate of return. It is also important to explore how well your fund has performed to compare options. The study conducted by De Zwaan, Brimble and Stewart (2015) found that females were less likely to understand the relationship between performance of the superannuation fund and risk and return. It is also argued that women tend to spend less time in paid employment as they are usually the ones to stay at home while raising their children, earn less than men (also due to part-time work while raising children) and may have less financial literacy than their male partners or men in general as they may rely on them to manage the finances. The problem is exacerbated when separation occurs as even though superannuation may be split 50/50 there is the gap in financial literacy, getting back into the workforce after working as the stay at home mum which can result in lower income from starting at the bottom. It is important to seek advice about superannuation, explore your options and think about your retirement early to ensure that you have sufficient funds to retire on. I also encourage a family discussion so each member in the family as well as teenagers can learn the importance of retirement planning and become more money wise. De Zwaan, L., Brimble, M., & Stewart, J. (2015). ENGAGEMENT WITH SUPERANNUATION: Is there really a gender gap? JASSA, (4), 12–18. Retrieved from http://search.proquest.com/docview/1786577943/ |
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