MASTERING EVERYDAY MONEY

A step-by-step guide to managing your money.

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KEY TAKEAWAYS

Learn how to use budgeting to refine your spending plan.

Understand the need for flexibility.

FOCAL POINT

Good money management is finding the balance between discipline and flexibility

CHAPTER 1

What is a Budget?

In my day job working with companies to build Operating Models, I often have to spend a lot of time getting ‘Big Wigs’ to appreciate the dynamics between strategic and tactical plans:

• Strategies tells the why and the what.

• Tactical plan is the who and the how.

I now approach my finances the same way.

• Spending Plan is the strategy. I map out what I think my year is going to look like and what I will likely be spending money on. I also outline any goals I have: saving for something, reaching a set target with my portfolio, paying for a training course.

• Budget is the tactical plan. I look this monthly and take in the reality I am in and adjust my plan accordingly. This could be for many reasons:

  • I am going through a job loss.

  • I have earned less than I expected.

  • I have a higher/lower than expected expense in one category.

  • I have something new I need to start paying for.

Budget introduces much needed flexibility into your spending plan.

Note that if your circumstances change in significant way, particularly around income, then the spending plan itself should be adjusted. Anything likely to result in a lifestyle change (positive or negative) should result in you updating your spending plan.

CHAPTER 2

Sequence & Cadence

There is no hard and fast rule for any of this, but having a work flow has helped make the process feel less laborious. If you think of the work that gores into pulling your spending plan together for the first time, it is comforting knowing that is not something you have to repeat on a monthly basis.

My workflow is as follows:

1. Build my spending plan - the big draft is done at the end of the year for the new year

   • I do this towards the end of the year but it can happen for you at any time. I review the one from the previous year and work on my Spending Plan for the coming year.

   • I will go through bank statements to make sure I have listed all I am paying for. I tend to think about what I’d like to cut back on because they add no value to my lifestyle and what I’d like to start doing i.e. new line items to add.

   • I focus on getting the atypical month to balance to zero and then I am all set.

2. Commit to the plan - set at the start of the year unless my pay schedule changes.

   • I have a 30 minutes monthly recurring invite to set my budget. This is set for the day before I get paid, so I don’t have to do any refinement after and is done in the evenings when I know I am usually free and will have access to my computer.

3. Complete Monthly Budget - completed monthly the day before I get paid.

   • This exercise is updating the spending plan to reflect the reality of the month I am in.

   • I haven’t written this down, but I have a clear set of things I am doing in that 30 minute time slot. I start with Household and run through the amount the in spending plan and what I know to be true. Then move on to the other categories and eventually work out my balance.

   

4. Refresh Spending Plan - as and when necessary.

   • You only need to do this when there is significant change to your personal circumstances.

CHAPTER 3

Sticking Factor

The best laid plans as they say, are doomed. Much has been said and debated about discipline and far it goes in helping you stay on track. Through trial and error, I have developed principles to help keep me on track.

Discipline helps, but a good system is better. A good system is a workflow that is workable for you and something you can use, and adapt as you mature financially.

1. Pay yourself first: Savings & Investments and Sunk Costs should be prioritised as much as possible. Set your goals in your spending plan and then break these down to what your monthly targets need to be. These go out without fail on payday.

2. Simplify & automate: automating bills means you’re unlikely to miss them. It also means less admin.

3. Pot it: the higher the frequency of transaction, the more opportunities there are to overspend i.e. Groceries, Households, anything involving in-person transactions. I lump these together in pots giving me additional flexibility - if I overspend in one, I have leeway to underspend in another to cover the difference.

4. Leave room for fun: you may be tempted to ‘go hard’ from the onset but do remember to leave yourself room to breath. I din’t cover this on the list of line items, but you could decide to have a category for ‘fun money’ an amount, set aside your you to spend on whatever you want, guilt free.

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UP NEXT

Mastering the Job Market

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