Budgeting your money
This will be one of the main resources in your life. It is how we transact in our day-to-day lives and obtaining it can take up large amounts of our time. The most common way for people to obtain money is to earn it and this is done by working, normally for someone else. This method suits many people and it will look after them for their entire working lives. It is important though to make sure that you are recognised for your contribution, treated fairly and with respect and that there is a suitable work/life balance.
There are common terms and concepts that are used to describe making the most of the money you earn and have. These include “make the money work for you”, “make the money you earn,earn you money”, “don’t live pay to pay”, etc
These (and more) all have their place and have helped people but what method suits you? The other issue is that they only address the money you earn. What about the money and benefits you are entitled to? Where do they fit into here?
Where to start?
Some very common advice is to start with a budget.
Simple huh?
For some yes, but for many no. There are a number of reasons for this:
- It’s too scary,
- It’s too unpredictable,
- My income varies,
- I am too far behind, it’s too late, and
- I have tried and it did not work.
Budgets
Different types of budgeting styles work for different people. There is no point forcing yourself to use a method that does not match your style. This will only make you dislike the budget and not follow it. different budgeting method include:
- Hold and watch
- Budget and bank
- Budget, sort and hold
- Budget, hold and spend
Each of these methods have their own advantages and disadvantages which will be outlined below for discussion at the forum.
Hold and watch
In this method, when people get paid they withdrawal the money and keep it at hand. The idea behind this is that you can see what you have and what you have left until next pay.
The advantages of this method are:
– You know exactly what you have to start with – You can see the impact of spending straight away – As the money gets low you can adjust your spending
The disadvantages of this method are:
– At the beginning of the pay cycle it seems you have a lot of money – Makes it hard to save or plan long-term – Creates a ‘pay-to-pay’ cycle
Budget and bank
In this method the budget is planned and only take out what is required when it is required. By using this method you can keep the most money in the account. This is a good way to manage your money if you have a Line Of Credit mortgage.
The advantages of this method are:
– Can reduce interest costs – Gives you a longer view of your budget allowing you plan ahead and break the ‘pay-to-pay’ cycle – Allows you to plan to save
The disadvantages of this method are:
– If you make a lot of simple, varying amounts transaction then you can lose track of what is spent. – Very easy to ’round up’ a cash amount being withdrawn from an ATM
Budget, sort and hold
With this method you plan your budget, withdraw your money and place it somewhere (e.g. envelopes) so you can physically see how much you have for each cost.
Advantages of this method
– As you use the money over your pay cycle you can easily see when you have reached your budgeted amount – Long term view – Allows you to save
Disadvantages of this method
– It can be easy to ‘borrow’ some money from one budget to use on other – Having the money there at hand can be very tempting
Budget, hold and spend
In this method you plan your budget, pay what bills and costs you have to but for the extra things, wait until just before the next pay and if the money is still there, then purchase it.
Advantages of this method
– Long term view – Allows you to save
Disadvantages of this method
– Having the money there at hand can be very tempting
As you can see with all these methods that it does take some effort to do the right thing but the benefits are worth it!