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.
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.
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.
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.