The Basics
As I outlined in the previous article on budgeting, setting a budget is relatively easy, sticking to the budget is the tough stuff.
It is a bit like going on a diet I suppose.
The thing about being on a diet is you are always thinking about the things you cannot have rather than the things you can have.
So it is not surprising that most people go off the rails when dieting – that cream cake was just too tempting this time.
In just the same way, if you have set a budget and put some cash in the bank to pay for something later, it will always be tempting to go off the rails and spend next month’s money today.
Sticking to a budget is hard. Especially if you are used to being loose with money. But you have to do it – there is no choice.
Think of it this way, if you stick to the budget, things will steadily get better. If you don’t then things will quickly get a lot worse.
The principle is outlined clearly by Mr Micawber in Charles Dickens’ David Copperfield:
“if a man had twenty pounds a-year for his income, and spent nineteen pounds nineteen shillings and sixpence, he would be happy, but .. if he spent twenty pounds one he would be miserable”
The quote is famous, but what is not so famous is that having said this Micawber then borrows money off David Copperfield for a drink then gives him an IOU in his wife’s name.
So just knowing what to do is not enough – the principles have to be followed too.
Planning for Success
The principle here is very simple: failure to plan is planning to fail.
Clearly, you can work out from this that the one thing that blows the budget time and time again is thoughtless, or unplanned, spending.
If it is food shopping then going to the shop without a plan, without a thought-out list is a recipe for failure.
Recent reports have suggested that one in six people now discards more than 10 per cent of their average weekly groceries shopping because the goods are either past their sell-by date or are no longer fresh.
Think of this as throwing one pound in every ten that you earn in the bin. Or in effect completely wasting one tenth of your working life.
Salad and fresh vegetables are the most likely items to be thrown away. This is of course the result of not thinking through your weekly purchases and planning to use what you buy before you need to throw it out.
For example, when putting together your weekly food shopping list, plan the list around daily meals for the coming week and involve everyone.
Focused Shopping (not grazing)
If you live with a family, or just a partner, everyone implicated in the budget has to be involved. It then becomes much less of a fight and strangely enough can be a very positive experience as it is something that you can all do together.
You need to know the price of things in the shop.
Do not buy on the basis of it looking nice, look at the price and assess the value for money. That is, the value to you. A buy one get one half price deal is not a good deal for you if you don’t really need the second one.
Get to know the prices of things so you can estimate spending before you go in the shop.
Keep in mind that value for money is not necessarily about buying the cheapest option. It is about value to you. If buying two food items today reduces your overall spend over two weeks – then spend more today and buy two to save money for next week.
If it doesn’t save you money or you don’t really need it – then don’t buy it. Be honest with yourself.
Food shopping will be covered again in a later article along with another on assessing the value of purchases.
Remove Temptation
The other substantial risk to budget adherence is of course non food shopping.
The advice here is simple – give it up wherever you can.
This is often very much a man / woman thing. A great deal of men will not take too much persuading to give up shopping, but a majority of women like browsing in shops and regard it as a pleasant pastime.
It can be also be regarded as a good opportunity to pick up some great bargains in the sales (because we are cutting back aren’t we?).
Unfortunately the truth is that the purchase of even the best bargain is still spending!
If you have run up debt as a result of past spending sprees you may not need to spend money on clothes for at least a year. So don’t!
Buy what you ‘need’ only and go directly to the shop you need to buy it from, buy it, then leave the shop and the mall (if applicable).
This also applies on the internet where constant browsing for bargains on ebay or elsewhere can lead to spontaneous purchases.
Stop doing this and NEVER combine browsing retail websites with alcohol consumption.
Do Something Else
There are pastimes, other than shopping, which do not require expenditure and you should look them up. These will keep you occupied, stop you thinking about all of the things you do not have and save you a fortune.
This will be covererd in more detail in a later article, but consider this. If you live near the seaside (in the UK you are never more than 75 miles from the sea), taking the kids to the seaside for a picnic will cost next to nothing, but will keep the whole family occupied for a day.
Make sure you pre-plan any days out and take everything you need with you. Buy what you need at supermarket prices – not at local tourist shop rates.
Review & Revise
Another general principle in all of this is to be constantly aware of the budget that has been set and to constantly review set figures and performance.
If you have changed insurance providers to reduce costs make sure you review it again next time it comes up for renewal (normally every year).
Equally gas and electric consumption can be reduced and it is easier to switch providers than ever before.
The best utility deals are usually joint (gas and electric) and once you switch, get into the habit of doing it every year.
The general principle with the utility companies seems to be that the longer you stay as a customer the more contempt they have for you.
Get out the Budget Planning Sheet and review it at least once a month to maintain a continual focus on your money and where it is going.
If you have a partner, make sure you do this assessment together.
It is an annoying and painful process (especially if you have an uncooperative partner), but it is a vital component of successfully sticking to your budget.
Reward Yourself
This is all very dreary stuff really.
It is like outlining a manifesto to be miserable.
If national austerity is difficult to take, personal austerity is really hard.
Once you get on this track of a strictly controlled budget it is easy to start thinking that there is no room to be spontaneous and you will never be happy again.
Well, STOP THINKING THAT WAY NOW! Because if you keep thinking that way, then you will fail.
Just going back to the diet idea, the successful dieters set themselves short term targets and provide themselves with rewards when they hit those targets.
They also have longer term objectives they are working towards with a big reward in the end.
If you are dealing with debt, the longest term target may be simply to be debt free.
This is the right aim and perhaps a good end reward might be an affordable holiday to celebrate – you can choose then.
Alternatively you may be working towards a house purchase – a mountain to climb for many people these days. Whatever journey you are on, it is likely to be long if you are reading this, so you need to set yourself some success staging posts along the way.
For example, in dealing with the food budget problem, always aim to under spend on your target budget amount. Put at least some of the saving to one side.
The money saved can now be used for trips to the pub, or other treats that let you know there is light at the end of the tunnel.
This will make you think twice about over indulging during a normal week as it will jeopardise a treat later in the week, or later in the month.
You can get a great deal of leverage from this by careful spending. That drink, meal or trip to the cinema will be so much sweeter when you have worked extra hard to earn it.
You should have small weekly rewards and larger monthly rewards. Better still make the reward some time off, or new clothes – something with lasting value.
You need to decide what will turn you on, but not take you off track.
With respect to the long term objective, never lose sight of this.
If it is a new house – hang a picture of your ideal home on the wall or put a small picture above the TV to keep it fresh in your mind always.
Never forget your objective and last, but not least, as Churchill said: NEVER, NEVER GIVE UP!