The unfunded black hole? Or the budget surplus, aka being “in-the-black”? Interesting how the same colour is used to describe opposite ends of the spectrum. But the current political discourse shows which one is de rigueur. Yes, it’s fashionable to balance the budget. So why is it so important? And does it have relevance to us personally?
Committing ourselves to reaching surplus in our own mini-budgets is a mind-set that goes hand in hand with “having enough”. We all know those who manage to spend as much, or more, than they earn, whose expenditure swells to reach their incomes no matter the level. It takes a measure of restraint and control to actively conquer the consumption bug, or to rein it in.
And a budget can be difficult to keep to – who can predict those unexpected but necessary expense items that seem to crop up so regularly? We can’t hold off replacing the brake pads because “it’s not in the budget”, can we?
An effective and practical way to start becoming aware of our spending behaviour, is to take just three or four discretionary expense items, say eating out, clothing, gifts or personal grooming and to allocate a realistic amount to them, monthly or quarterly. Then the countdown begins. Note everything you spend on those items, and subtract the amount spent from your allocated amount until you reach zero. And then? You stop spending. Until the next period.
It’s a bit like when you’re trying to get a grip on your eating habits – writing down everything that enters your mouth can be very enlightening and may be somewhat surprising when added up… but invaluable. Because that’s when we can really start making pro-active choices. wisewomen’s equivalent of the saying: “A minute on your lips, a lifetime on your hips”, is: “Forgotten in your closet? Or towards a house deposit.” Try chanting it next time you’re slipping out your credit card to make that “gotta have” purchase.
So we’re in “surplus”, now what? Where does our first “allocation” go?
Well, our miniscule home budget is in principle not that different from the mega federal multi millions. Just like the government, when we spend more than we earn, we’re in deficit. The money we use to fund the difference is often from borrowings or debt. And it’s not called “bad” debt for nothing, because we pay for the interest in after-tax dollars. Financing our everyday lives with a credit card or personal loans is a no-no when it comes to balancing the budget. So, our first step is to get rid of “bad” debt – easy to say yet in reality it may take months to achieve. But slow and steady wins the race to surplus - remember the government is only planning to get there in 2013!
Then what? Back to our expected unexpected costs - we need to have an emergency fund or buffer, to cater for the types of costs that we can’t foresee, but know will turn up. The size of this buffer is dependent on your personal circumstances, but hopefully by this time you’ll be starting to get a good handle on where your money is going, and how much you’ll need to put aside (in a high interest savings account) for your emergency fund.
And after that the fun starts because the hard part has been achieved. The first and most difficult steps towards building wealth are the spending-less-than-you-earn and the paying-off -your-personal-debt bits.
Now you can consider the possibility of a new experience: watching your monthly savings mount, your investments grow; the pleasure of receiving a dividend cheque – guaranteed to rival retail therapy in the personal satisfaction stakes… and what’s more it keeps coming!
Remember it’s not what we have but rather what we do with it that really matters. And it feels so good to be back in black.
No comments:
Post a Comment