Why a Budget is for Everyone

The word budget gets a bad rep.

It seems that many people think a budget is only for those who are struggling financially. But is this true? Does a budget mean you can’t manage your money or does a budget mean you are consciously managing your money? I would argue it’s the latter.

What is a Budget?

Simply put, a budget is a way of understanding your incomings and outgoings. Often in a nuanced way where things are categorised. Sometimes that categorisation is basic like “needs” vs “wants” or “necessities” vs “nice to haves.” Other times it is broken down into areas such as bills, groceries, clothing, entertainment subscriptions, household items, socialising, kid’s clubs, savings, debts, etc. Whichever way you approach a budget, the main objective is that it gives you an understanding of what money you have coming in and what that money is spent on.

Why Make a Budget?

Now, a budget isn’t about highlighting the money you don’t have. It’s about understanding your spending. It’s about financial awareness which can lead to a greater sense of control and confidence with your money. And no matter how much money you make, that sense of control and confidence is a brilliant thing to have.

Though it is also true that if at the end of a month you don’t have money left or are always stressed that this ‘no money left’ reality will be yours, a budget can help you analyse where your cash is going and where you can potentially make some changes. Changes that can lead to the ability to save more, pay off debt faster, plan for large expenditures or just build your confidence around money management.

Understanding Money Management

Money management is the process of tracking your finances. It’s the overall concept that is laid out in a budget document. We’ve already touched on the financial benefits of understanding what you have coming in and going out. So, let’s look at the psychological benefits of this, too.

Awareness

Many of our financial habits will have likely developed without conscious thought. Since money management isn’t taught in schools most of us don’t enter the working world with the understanding of how our financial decisions impact us.

Think back to your first job. When you got your first pay cheque what did you do with it? Did you save any? Did you spend it on necessities? Did you use it for new things like clothing or video games? Or perhaps experiences like event tickets or nights out? What about your second pay cheque? Was there ever a conversation with someone on the best way to manage your money or were you left to indulge the dopamine hit that comes with a taste of financial freedom?

Whatever the answer, don’t judge it. Simply take a moment to recognise that the choice you made was potentially reflective of that point in your life and the excitement of having some cash in your pocket. With that awareness can come the realisation that you started making unconscious decisions around money. Decisions that laid the groundwork for future habits. This newfound awareness gives you the opportunity to make different choices.

It is also worth noting that our outlook on finances is going to have been influenced by how money was navigated in our childhood. This is a bigger topic to cover and if you’re interested in a greater understanding of how our financial habits and mentality develop and what can influence it, you can read our article on The Psychology of Money.

Structure: Logistics

Now that you can see your habits were formed before you knew what you were doing, you can start to put structure in place to change them. This structure can start with a budget. Why? Because if you don’t know what you’re spending money on, you don’t know what changes to make.

Say, for example, you have a habit of buying a coffee every morning. (This is a popular example, I know. But it works so we’re going with it.)

That coffee is approximately £4 each day.
5 days a week is £20.
52 weeks a year is £1,040 spent on coffee.

You’ve learned this information by doing a budget. And if next month you make a different choice around the number of coffees you buy, when you review your budget, you will see the difference.

Previously, I noted that a budget can be done as a basic breakdown or a more in-depth categorisation. When it comes to truly understanding your spending, a deeper dive can really help. If you are a coffee out person, knowing how often that coffee includes a pastry can highlight another potential savings.

Once you start to make some changes, it’s important to review your budget regularly. This is when you see the benefit of the effort you’ve put in, and how you can best decide where to reallocate the money you are no longer spending on “non-essentials.”

To make this structure solid, it can help to put the time in your diary to regularly review your spending. This can take a well-intentioned thought into a full plan of action. Having a plan creates the potential for a bit of a relief from the mental stress often associated with financial concerns. It can give you a sense of control that leads to more confidence in your decisions.

Structure: Habits

Now it’s time to change the structure of your habits. Instead of coffee five days a week, have it two. That approach has you spending £624 less a year on coffee. And this is just one habit.

From the above example we can see that structure is not only about making a budget. It’s also about the structure of your daily life. If you find, for example, that when you leave the office you walk down a busy high street with shops that you can’t help but walk into, what could change if you walked a different way? Putting a different structure in place around where the financial temptations happen allows you to form a new habit.

What if your habit is for takeaways? In this scenario you might want to consider why you tend to choose a takeaway over cooking. Time, convenience, energy – they might all be part of the why. Now, look at what options are there that help you manage those things and save you money. Meal planning, prepping, subscription boxes might be considered. Before you make a decision on which way to go, it can’t hurt to look at the finances.

If, for example, you’re spending £60/week on 3 – 4 takeaway dinners and/or lunches, price up the other options. Once you have the figures and can see the potential savings, it could just be the boost you need to put the effort in to making a different choice. A choice that when made continually becomes a habit.

Mind Over Matter

Retraining your brain takes effort. It takes forethought, action, repetition, presence of mind and motivation. If you can find what motivates you, and perhaps ways to reward your success, you might find that you feel less stressed and more excited about change.

To bring this all back to making a budget, this is the single most consistent tool to see the benefits of your effort. It helps take money from an often seemingly intangible thing to facts and evidence. This might seem a daunting task, but the benefits can far out weight the initial worry around writing the numbers down. For if we don’t know what we are facing, we cannot find the way through it.

To get started, download our budget planner via the link on the right. And if after that you could use a bit more guidance on managing your finances, fill out the contact form below. Whether it’s full financial planning or financial mindset coaching that you need, Bigmores has you covered.