70: Why Budgets

Transcript

Meaghan Smith  00:20

Hello beautiful people and welcome to another episode of the money mindful Podcast. I am your host Meaghan Jean Smith. I am a money mindset and life coach for women. I help women get out of their own way so they can create the extraordinary lives they want to live on purpose. Alrighty, so today I want to talk to you about budgets now. Don't hang up. Don't pause, keep listening. I know I said the word budget. But stay with me. It's going to be okay. You're going to learn lots. And it's not going to be as painful as you think. Maybe just a little bit painful. No, no. All right. Listen, I want to talk to you about why you need a budget and why you don't need a budget. Yeah, right. That's I just said that why you don't need a budget? I bet you weren't expecting that. I want to talk to you about how to do it, how often you need to do it and why and why you don't need to do it, as well. So yeah, this is a topic that I think is really important. And I'm going to approach it from mindset, as always, but I'm going to give you some practical information as well. But first, I just want to tell you what happened this morning, I was making my breakfast after I dropped the kids off at school and I had Japanese curry for breakfast this morning. Why am I telling you this? Is because I was thinking about this episode and what I was going to tell you about and I was thinking about how what you do with your budget is totally personal. It's totally up to you. And there is no right way to do it. Just like there is no right way to eat breakfast. You know, when I lived in Indonesia, many, many moons ago, eating cereal, or having eggs on toast wasn't common. Over there. With my circle of friends. I mean, it's normal to eat rice with every meal in Indonesia, where I was where I was living. That was what was considered normal. And as I pulled out the leftovers from dinner, yes, we had this Japanese curry last night for dinner. And I was dishing it out for myself for breakfast. I was just thinking about how Yeah, this is what I want to eat today. I didn't feel like eggs. I haven't been eating bread lately, because it's just not agreeing with me. And I thought yeah, having curry is the perfect thing for me right now. But to say that in Western society, it's kind of unusual. Like you wouldn't see an ad on TV with somebody eating Japanese curry for breakfast, it would be an ad about eating weetbix or eggs or something muesli something like that, right? But we get to decide what we do for ourselves and there is no normal. There is no right way to eat breakfast or correct breakfast, food. Just like there is no correct budget or budget. That is the right budget that you have to do. And if you don't do it that way, you're doing it wrong. All right. So let's get into talking about budgets. The first thing I want to talk about with budgets like Why? Why do you need a budget, this is a very important point to actually get clear. Now, if you are new to managing your money, getting to know your money, having a relationship with your money. Doing a budget, in my opinion, is essential. Because it is the first step to creating awareness

Meaghan Smith  04:36

about your money, what you spend your money on what you want to spend your money on. areas where you're spending a lot of money where you didn't realise you were spending a lot of money, other areas where you don't spend much money but it's actually something that's really important to you. All of that awareness is created through doing a budget. I don't see a budget as something that you have to do as a punishment, not at all, I think a budget is about working out, first of all, how you spend your money. If you've never done a budget before, I think it's an incredible exercise to work out where all your money's going. Because so many of us And believe me, there's nothing wrong with you. We've all done it. So many of us, we just spend our money unconsciously, we don't even know what we're doing with it, you know, we get to the end of the paycheck, and it's like, oh, what happened? Why if I suddenly got $1,000, owing on my credit card, what did I even spend on this fortnight, you know, it's, there's nothing wrong with you if that's the case, but having a budget helps you see what you are spending your money on. And it's really that factual, and that simple. It doesn't have to be some difficult drawn out thing. Now, having said all of that, I'm going to tell you that I do a budget once a year. That's it. I don't look at my numbers. Every month at my pert in my personal finance, I certainly don't now I'm about to redo our budget this month, because next month, where the amount of money that we pay on our rent is changing, my partner has just changed places of employment, I am also earning a lot more money, like all these things are just changing. And so it's like, right, it's time to do a new budget to just work out where we're at. Now, there's some people who do a budget every month, that's totally fine. Nothing wrong with that. And in fact, when it comes to my business, and when it comes to our investment properties, I am very thorough and do my books every month. But that's different from my personal spending. I only do that once a year. That works really well. For me, it's absolutely perfect for me, but I'm sure there's some people listening right now who are gasping and thinking, Oh, my gosh, what the heck she only does at once a year, you should be looking at your finances every month? No, I don't think so. And here's the thing, it's, to me, it's like weight loss, if you want to lose weight, and you are totally disconnected with the food that you eat, how often you eat, your portion sizes, all of that. You might develop a food plan for yourself or have a food journal. And that might be something that you do every day. But as you get to know your body, you create a better relationship with yourself. And you don't need to do a food plan every day, right? Because you get your eating habits under control. And that's what it's like for me with money. Like I've been doing budgets for a long time, and I'm very familiar with the ebbs and flow of our money, our personal money. And I don't feel like I need to be that controlled and concise with our money on a month to month basis. Because I know where the money's going, and I allocate it to different places that I've been doing for years. And I'm very familiar with that. But if you've never done a budget before, and you totally are completely unaware of what you're spending and where it needs to go. Can you see how it's a really helpful exercise to do? Okay, so how do you do a budget in a really simple, easy way? I'm going to give you a really quick rundown on how you can do a budget. If you want to go into this in more depth. I did an episode on this when I very first started this podcast. And it's episode number three how to spend your money. And I go over it in more detail. But I'm just going to go go over it again for you here because I think it will be helpful for you. Basically, when it comes to spending your money. It's all about where do you want your money to go. So money comes in from whatever sources that you have, whether it's your regular

Meaghan Smith  09:27

income, investments, inheritance, whatever it is, money comes into your bank account. Now what do you want that money to do? And where do you want it to go? One of the best things to do first is to work out what are the essential things that you want to spend money on every month or every fortnight or every week, however you want to do your budget cycle now what you deem as essential expenses is really up to you. Most commonly, when you read a finance book, essential expenses will be things like your mortgage repayments, or your rent repayments. There'll be your utility bills like gas and electricity and water. There'll be things like groceries, how much money you spend on food, it might be child care, or the cost of petrol, the the costs of running your car or public transport. In general, these are essential expenses that most people have. Now what you can do and what I do is I just simply list all those things. So all the the expenses, the regular expenses that we have, I just make a list, I write them all down. What I usually do is I do it in terms of annual expenses of those things that I know that a definite bills that I pay every month, for example, every year for example, insurances, car rego membership fees, things like that, I write a list of them. And then I just work out what that cost is over the whole year, I divide it by 26, because that's how often we get paid. And then I just make sure, every fortnight that amount of money goes into a separate account. So whenever our yearly bills come in, like insurance payments, or, or school fees, that money is just sitting there, it's ready to go. And we've got it, they're waiting. And it means that on a month to month or week to week, we don't suddenly get a $1300 bill and not have that money, just they're ready to pay for it, we're not scrambling This is where being connected and aware of your money, I think really comes into effect, because you are aware of what you are wanting to spend your money on and what you have chosen to spend your money on over the year and the things that are important to you like rent, I mean, paying our rent is pretty important to me, I definitely want somewhere to live, and a roof over my head, paying the mortgages on our investment properties is very important to me, I definitely want to make sure I have the money to pay for those things. So knowing ahead of time, what that those amounts of money will be. And having those amounts of money put aside is something that makes my life a whole lot easier. But I only need to do that once a year, I don't need to look at that every month because the the amounts of money aren't changing. And like I said before, I'm only redoing my budget now because we have expenses that are changing. So I just want to make sure that we've got ourselves sorted and that we're accounting for where the money is going for these new amounts of money. Now the second category of expenses, basically, non essential expenses or discretionary expenses. And again, I think this is really personal,

Meaghan Smith  13:26

it's totally up to you what you deem as essential or non essential, for example, paying my coach, for me, that's essential. I put that in my enssential costs, because that is what I use for my mental health every week. It's also about what I do as a profession. And so I see that as incredibly important and something that I consider essential gym membership. For instance, if you really value your health, and you go to the gym every week, and you see that as something that is really essential, then you put it in essential expenses, if it's something that you know what, you actually are quite good at exercising on your own at home, and you kind of just like having the gym membership because it's something that you enjoy doing. You like going to the gym and seeing your friend or what have you. Maybe it's not essential because you are still looking after your body and doing what you need to do without having to pay those gym fees. And the only reason why I say distinguish between essential and non essential is if you're in a stage where money is tight in the flow of money, you just need to monitor well. The non essential expenses is the first place you can go to to cut but in my view, I think it's much better to put Your energy in making ways to create more money than to cut back. But certainly you might find, like, for instance, just recently, Louis and I, my partner, we realised that he was playing paying for an iTunes membership. And I was paying for an iTunes membership. And we're kind of like, hang on a minute, why are we doing this, this is silly. We just got a family membership, right. But these are the kind of things that happen. When you're not looking at your expenses. And having a budget, it's just as simple as that, like, it doesn't need to be more difficult than that. Now, when you've listed all your essential expenses, and your non essential expenses, if there's no money left, at the end of the month, then you That's how you know you need to make adjustments. Okay, because, and also, as part of that, I should have mentioned this early as part of your essential expenses, it might be something like saving a percentage of your income, that could be part of your essential expenses. Now, I don't want you to get your knickers in a knot about this, like truly, he can literally just make two lists of essential expenses and non essential expenses, work out what the total is, and then divide that by whatever your pay cycle is. So if you get paid once a month, you divide it by 12, you get paid fortnightly divided by 26. And then you just know how much money you have to put aside out of every paycheck to cover the things that you already know you want to spend money on ahead of time. And that's it. Now, if you want to get a bit more technical with it, like I said, I did an episode Episode Three, how to spend your money, go back and listen to that because I talk about how to distinguish between fixed expenses and variable expenses. So for example, how much money you pay on your electricity bill is going to vary depending on the season. So you can account for that a little bit differently. But I go over that in that episode, if you're interested in going into it in more detail. Okay, so just a couple of things before I finish, I do my budget on an Excel spreadsheet, I do it because I do it every year. And it's just sitting there in a digital file, it's easy to copy and paste things, it's easy to do calculations and boom, it's done. But truly, you can do it on a piece of paper. You can do it any way you want to do it. You can Google monthly budget, and there will be a gazillion spreadsheets that come up for you. I think sometimes people just including myself get to this point where it's like, oh, just tell me what to do. And I'll do it right. But when it comes to our own lives and money,

Meaghan Smith  18:07

I really think that you need to do it the way that you want to do it. That's personal for you, that works for you. Because what works for me is not necessarily going to work for you, right? We're different people, we have different lifestyles, we have different ways of doing things. You know, I've seen people doing budgets, where Yeah, they roll it up on paper, and they put nice headings and all of that jazz. And that works for them. I've seen other people with these crazy complex budget sheets with pie graphs and all sorts of stuff. And that works for them. And that's great. You do what works for you. There's no correct budget. There's no correct timing that you have to do it, you'll see that there's some people who swear by creating a budget every month, and they're all gung ho about it. Great. If that works for you do that amazing. If you want to do it once a quarter if you want to do it once a year. Amazing. Just do what works for you. Okay, I do want to end with just one little side note though, when it comes to my business. And when it comes to our investments. I do my books every month without fail. And the reason there is a distinction there is because when you run a business, it's actually legal requirements that you have to commit to in terms of reporting to the tax department and waiting till the end of the year to do my books would be would make so much more work for myself having to go back trying to manage receipts and income in income out all of that. No, no, I think it's far more effective. To stay on top of that stuff every month, and I also have a bookkeeper to help me do that and make sure that I am compliant with the law. And I think that is a different area of budgeting and finance. But when it comes to personal finance, my personal opinion is, I just think it is personal, and you can do it however you want. But if you've never looked at your money like this before, or you've never done a budget before, I strongly encourage you to do so just for the very reason that it creates awareness about your money where it's going, and it creates a connection with your money. And it doesn't have to come from this place, this boring place of going to work on my numbers, you can do it from a place of this really serves me, you know, I I like to spend money. I like to save money, I like to have a good relationship with my money. And doing a budget is a way that you can create that for yourself, get to know your money, know where it's going and make intentional decisions about where you're spending it. We've all heard the stories of Oh, I calculated how much I was spending on coffee, and I realised it was, you know, a bazillion dollars a year and I and once I realised that I decided I wasn't going to buy a coffee every day. Listen, whether you buy a coffee or not. I have no thoughts about that. But when you do a budget, you get to see all that information and realise, oh yeah, I am spending that much money on coffee or getting my nails done or whatever. And then you can just make a decision intentionally. Is that important to me? Do I want to keep doing that maybe it is maybe buying a coffee to you is really important to you. It's something that you really enjoy something special that you do for yourself and that and you know that you have the money in your budget and you're doing it 100% intentionally. Maybe there's other things that you spend money on that you realise, you know what, I don't really even care so much about spending money on XYZ. And if I didn't spend money on those things, I'd have an extra $200 every month that I could give to my favourite charity or save or whatever it is that something that you want to use that money for that is actually more important to you. So it's really about awareness. Okay, I'm gonna leave it there. If you've got any questions about this, feel free to shoot me an email or reach out to me anywhere where you follow me on Instagram that's at money mindful podcast, or on Facebook. Same handle at money mindful podcast. And if you're interested in learning more about working with me creating a deeper relationship with yourself and your relationship with money.

You can do that by booking a consult on my website. Until we meet again, have a beautiful week. Bye Bye.