BUDGETS AND BATHTUBS
Plug those leaks
The do's and don'ts of family budgeting
ITom Hartmann tackles the do’s and don’ts of family budgeting.
t’s fair to say that many of us, when faced with the idea of working on the family budget, would just as soon run a soothing bath instead. Yet a budget should deliver the same peace of mind that comes with pampering ourselves and ‘me’ time. After all, you’re taking control, and your anxieties ease when you know you’re steering the situation where you want it to go. You need this!
Budgeting, in fact, should be as easy as filling a bath. There are some helpful parallels, actually. First, we pop on the tap. We’ve got our incomings for each pay period – cash flowing in from salaries, wages, businesses, and so on. That money can easily flow down the drain, which is what typically happens if our outgoings are as much as our incomings. We’ve got money coming in, but just as much money flowing out, so not much to show for it. The bath isn’t filling.
So we plug the drain. If we forget the plug and spend more than we earn, the bath never fills. It doesn’t matter whether we’re rich or poor – if we let it all go down the plug hole, we never get ahead. Everyone has to live, so we can only plug that drain so far. But the more we can, the faster the bath can fill. It may take a while, but that’s still the general idea.
Even if we put the plug in, we may still find that our tub has some leaks – unplanned expenses keep draining it and stop it from filling as high as it could.
Is this for me?
Everyone can benefit from a budget – not just people who are having trouble making ends meet. It can mean the difference between feeling in control and achieving those goals we set our sights on, versus always wondering where our money went and going into overdraft between paydays.
The core of building a budget is figuring out whether we’re spending more or less than we’re earning. Spending less than is coming in? We can use a budget to work out how much can be squirrelled away each payday. We call this 'paying ourselves first'. Spending more than is coming in? We can use a budget to see where all our money is going. We can also see if there are any ways to spend less or earn more.
Budgets also help us see where our money actually goes. It's seemingly impossible to remember what we spend money on every day. It's even harder to keep a running tally of what we've spent on one kind of thing over the last week or month, like takeaways, groceries or kids' clothes. Can anyone remember what they spent on petrol in the past month?
The old school way of tracking spending is to carry around a notebook for a month or two. Write down every purchase – parking, coffee, school stationery etc. Then add in any bill payments to get the full spending picture. Little things like ice creams and parking really add up, so we need to make sure we include them.
Some banks offer a tool that links automatically with our digital banking. Another way to do this is to download a smartphone app that does the job – there are several designed to help us track our spending on the go, such as Wally, Spending Tracker or Spend Today. Doing a web search for 'spending diary' also turns up lots of links to resources and tips.
When we track our expenses, we need to be ready for some surprises. But wherever the leaks are, that's where our opportunities are too. We're able to see where our money is flowing and make some choices about where we want it to go instead – towards holidays, an emergency fund, education, and retirement.