I have giving up on budgeting! All the accountants and bookkeepers stopped breathing right there. Breathe!!! Now let me explain. Actually if I am totally honest I have never really budgeted. Most of my life it has been an area that I have carried a lot of shame around, as a coach and business person I have felt that I should have known better. The longer I left it the harder it was to ask for help.
My first introduction to budgeting came when my husband and I were a young couple, I was at home caring for two babies and he was the sole provider. Once we had paid everything, we had a meagre R200 ($20) to tied us over for the rest of the month. We wanted to figure out how to make this money thing work, so we signed up for the budgeting course. We realised we were in trouble when they told us we should budget R100 per person in the family for clothes. We looked at each other in devastation and came to the conclusion that you could only budget if you had money.
Two decades later as we earned more, life became more comfortable. With the odd crunch time financially we could never really account for where all that money was going to. If someone asked me exactly where we stood financially, they would probably get a blank stare. I would walk away in a shame storm and then excuse it with "finance and numbers are not my thing, I am a people person, not a numbers person”.
Well about a year ago, I started my own business and decided I was going to stop living in denial. I decided to start educating myself every chance I got. I started paying attention as to what was happening in my finances, I even started doing spreadsheets, my late mom would be so proud. I did some reading up on budgets and tried to make them work, but with a business that has different amounts coming in every week, I was finding it impossible to stick to the budget. It was just frustrating.
A month ago a friend come to stay and I was expressing my frustration. She told me what her husband was doing with their finances. So I humbled myself, gave him a call and asked him to teach me the secret of their success. It was an incredibly vulnerable moment for us, but one that I am so glad we did.
The first thing he told me is “Budgeting doesn’t work!” I was gobsmacked! That is definitely not what I was expecting to hear. He then proceeded to tell us about the percentages we need to work with.
It’s simple, but not easy. You have to be disciplined and need someone to keep you accountable to stick to it. We have been doing this for 3 weeks and I have already paid off our family credit card… this works, it’s simple and empowering.
Step one: Set up a few accounts, most banks will allow you to have a few saving accounts. The bank allows me to give them nicknames too. It is up to you, but I cut up my credit cards. The accounts are still there, but I can’t just spend on a whim anymore.
You need two transactional accounts:
Daily Expenses: I call this account the G & T Account. This is where we pool our money together to pay for our daily expenses and where your debit orders come off of.
Spending Account: We call this our Splurge account, we have a card for this one as well. All the money that goes in there we can spend anyway we like, our coffee’s, lunches, movies and other treats come out of here. My hubby has the card, I prefer cash. We don't have to account how we use it but when the money is finished, it’s finished. No splurging comes from any other accounts..
You need two savings accounts:
Savings Account Number one: Emergency Account. This account has to have a minimum of $2000 in it. You might want that to be more, that is up to you. It’s for those things that happen which are unexpected. Tyre blow out, washing machine goes on the blink. Urgent travel. The goal is to grow it as fast as possible to get it to $2000 and then continue to grow it. You could also put those annual payment like your WOF or Registration of you car, tyres, etc in there. Work out what the cost for all those expenses will be for the year, I divide it by 10. Make sure you add that in during the year.
Saving Account Number two: Fun Savings. I call this my Smile account. As it grows it makes me smile because it means I am getting closer to going on a holiday, or buying that new car I like etc. These are for those big ticket things that need some time to save for.
Step two: Choose a day, when the money comes into your account, doesn’t matter whether it is monthly or weekly. If you get paid weekly then do it weekly. If you have your own business and money comes in a different times choose to do it once a week on the same day.
Write down your total income. Then do these percentages:
To start off: If you are getting rid of debt, cut up those credit card or at least hide them.
60% goes to Daily Expenses. (If your expenses are over 60% you are living above your means, you have some decisions to make….)
20% goes to Debt Cancellation.
10% goes to Emergency Account.
10% goes to Spending Account.
When the Debt has been cancelled.
60% goes to Daily Expenses.
20% goes to Emergency Account.
10% goes to Fun Savings Account.
10% goes to Spending Account
When the Emergency Account hits your Target.
60% goes to Daily Expenses.
20% goes to Fun Savings Account.
10% goes to Emergency Account.
10% goes to Spending Account.
Step three: Get someone you trust to keep you accountable. We have a spreadsheet with our incoming amount, then a dashboard with our “buckets" which are growing (or in the case of the Debt, decreasing). We do it every week and send it to our friend. I also send him a photo of our bank balances. If depends how serious you are as to how accountable you want to be. I suppose you are only fooling yourself if you fiddle the numbers.
Step four: Enjoy the fruit of your labour.
So why not give it a try? We have been astounded how quickly things have shifted in our finances and the sense of empowerment it has given us.
(Disclaimer: This is not financial advise, just something that is working for me, give it a try if you think it will be helpful).
