Why ‘Basic’ Budgeting Leads to Errors!

 

It is really unfortunate that many people only decide to budget when they realise that they don’t have a lot of money to go around. That not only carries a lot of emotional baggage and stress, it can actually dull down your budgeting efforts.

For example, most of us usually define budgeting as simply penny pinching and cutting expenses left and right. We think these are the ‘basics’ of budgeting and we tell ourselves that our position will somehow heal itself after a month or two.

In reality, this is what many advisors call a poverty mindset. And yes, the stress and anxiety created by this mindset is not conducive for effective budgeting. The idea of ‘basic’ budgeting is a recipe for the most basic financial mistakes! These include:

Short-Term Thinking

A budget is not just meant to secure you for a month or two. For example, certain large payments such as insurance can be quarterly or bi-annually. Just because you won’t have to pay them by the end of the month doesn’t mean you don’t have to set aside money for it now.

This also applies to saving money as well. When your mentality is to just scrape by every day, you will be less likely to spot opportunities to effectively reduce your expenses. You are only focused on spending to ‘survive.’ (Needless to say, it also means you are being far too hard on yourself!)

Lack of Preparedness

Having an emergency fund is also a basic, but how many times have we either neglected to have one or constantly dip into them like a cookie jar just because we couldn’t help ourselves? With no long term vision in mind, we lack motivation to stay on track.

In the long run, this eventually results in a lack of preparation for the when the real emergencies come around. And by then, we end up having to use credit, which puts us in even more debt and takes more out of our pocket long term.

Budgeting should be broader than this. We need to remember that we can’t always predict every serious financial emergency. That is why budgeting also encompasses the way we prepare for such eventualities. (It is not exclusive to cutting corners!)

Forgotten Expenses

Let’s be honest: We cannot completely stick to a budget by just ‘having it all in our head.’ In fact, when suffering from a poverty mindset, you will have far too much on your mind to properly keep track of where your money is going. There is stress, day-to-day worries, lack of enthusiasm and perhaps depressing thoughts.

Having a financial blueprint (comment- let’s link financial blueprint to http://yourmoneyhabit.com.au/howitworks/ for now) for personal cashflow helps people understand where money is going and free up some brainspace. Having a ‘mental budget’ doesn’t get many people very far in terms of financial security. There is far too much room for error.

In fact, if you want a real budgeting basic, just writing down your expenses by hand is much more valuable than trying to remember it all. You don’t even need a fancy financial app to start doing that.

Many people believe are very busy and confused about going beyond budgeting basics. It’s understandable, lots of us were never taught how to manage our money, it isn’t part of most school curriculums. Here’s the good news though – budgeting is a skill that anyone can learn and be good at with a little support.

Question” Can we add a link to a blog at a later date?

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