Do you suffer from one of these budgeting misconceptions?

Do you suffer from one of these budgeting misconceptions?

stencil-facebook-postA 2007 government study found that only 52% of Australians budget regularly for their day to day finances. There are a number of common misconceptions around budgeting which lead people to not have a budget. Some of the common misconceptions around budgeting:

  1. I’m not good at math so I can’t manage my money
  2. I don’t want anything big so I don’t need to save
  3. I hold a secure job and see no reason to save
  4. I pay my bills promptly and don’t need budget
  5. Getting my personal finances under control can wait

We have previously discussed the first misconception on how through the use of the tools available today it does not matter if you are good at math or not to manage your money. Lets have a look at the other misconceptions.

The common theme for the other 4 misconceptions is that nothing is wrong, I have enough money to live off, why do I need a budget now. There is no sense of urgency.  Why is because you don’t know what is going to happen tomorrow.

Why these misconceptions are wrong and you do need a budget

My own personal experience was a couple of months ago. I was involved in a minor traffic accident (my fault, and yes I am still kicking myself over it). We have insurance on the car and the damage didn’t look too bad…. oh how I was wrong.

The car ended up being off the road for 4 weeks, between the insurance excess and paying for a hire car (so I could continue to earn a living) we ended up being out of pocket $2,000.

How would your finances look if you had an unexpected $2,000 bill? Were made redundant tomorrow? Your landlord puts your rent up by $50 a week? The banks put the interest rate up by 1% on your home loan?

This is why you should have a budget, to understand what your current expense are and to know if you can afford your next purchase. If your rent is put up by $50 a week, can you cut back somewhere else to balance it all out?

The main reason to have a budget is so that you can make informed decisions about your spending and to plan for the unknown events in our lives.  When we know and understand our spending (expenses) we can then plan for the future.

Whether that is putting some money aside for a rainy day, saving for our kids university education (yeah that is not getting any cheaper), putting the deposit together for your dream home or planning a family vacation at Christmas. Having a budget lets you make these decisions.

Next time we will have a look at the 4 elements which make up the budget; Income, Expenses, Debts (or Liabilities) and Savings.

If you are suffering from one of these budgeting misconceptions here is a link to a budget template so that you can start thinking about the elements which will make up your budget.

Math and Money

Math and Money

You don’t have to be good at math to budget

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I remember in the early ’80s my family was living in Blackall, every 3 months mum and dad would pack up our family for the 8 hour trek across to Rockhampton to do the grocery shopping. We would visit Jack the Slashers discount grocery store, my parents would walk up and down the isles collecting the groceries we needed, calculator in hand keeping track of the cost of the purchases. You don’t need to be good a math to manage your money, you just need to use the tools available.

Last week I mentioned some of the misconceptions or beliefs that people have which stops them from putting a personal budget in place. A common one I hear is

I’m not good at math so I can’t manage my money

As my story above shows, it is not about being good at math. It is about understanding what you want to achieve and using the correct tools to help you get there. The tools don’t have to be anything fancy, pen and paper will work, a spreadsheet or there are a range of apps for your computer or smartphone.
There are 4 main components to the budget
  • Income
  • Expenses
  • Debts or Liabilities
  • Savings
The primary aim of your budget is to control you expenses so that your debts can be repaid and you can start saving for the future. In the next post we will finish discussing the misconceptions around budgeting and continue looking at the components of the budget.

 

In the meantime if you would like to get a headstart, here is a link to a budget template you can have a look at.