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Gary Clement for The National
Gary Clement for The National

Budgeting key to living within one's means

On the money: Budgeting is the most important financial habit you can create for yourself.

Today we're going to talk about possibly the most boring topic imaginable: budgeting.

But before you switch off and stop reading, can I please invite you to stay with me and then make your decision to do it or not at the end of the article?

Yes, it's boring, but it's also the most important financial habit you can create for yourself.

Why? Well, let's paint a picture. We often talk about having (or more likely lament not having) a money-tree. I like that analogy: the budget is the trunk, rooted deep into the ground, solid and secure, and everything you have and want in your life, from clothes to investments, to credit card debt, is the fruit that hangs from the tree. If the tree isn't there, then neither is the fruit.

The thing is, without knowing what your financial reality is, you cannot begin to make decisions about what you can commit to without causing great stress and distress at some point in time.

Let's think of another analogy... eggs. We talk of not putting all our eggs into one basket, or having a nest egg; well, how about looking after the chicken that lays all those fabulous eggs? That chicken, my friend, is your budget.

I'm not saying it's easy. Not at all. There is real pain involved in gathering up all the bits of information: the invoices, receipts, writing down notes on the back of them so we don't forget what they were for, sitting and inputting them into some form of device or software so that we can keep track of things and make sense of it all. Painful. Boring. But vital.

I believe this momentary pain and boredom is a better price to pay than the future pain and possible degradation of lifestyle that would surely happen if we don't save, plan and secure our future.

And so, I would like us all to take the idea of budgeting extremely seriously.

Going by the stories and feedback we get from our cashy.me community, most people tend to get excited about what money can do for them, and ask what they can or should be investing in, and essentially how they can earn more and make their money work for them. And this seems to be the focus of the self-help books out there; budget and savings are mentioned, but are pretty much skipped over, and there's a jump towards what diversifying your investment portfolio means and what sorts of policies you could have.

I bet most people would reach for a book that was titled: How to Make Money from the Stock Market. But most would ignore this one: How to Save for a Better Future. Or how about this: Grow your Wealth by Budgeting.

The emotional tug is towards what money can do for you, for your life, which is great.

But you increase the odds of living your dream if you start with solid basics: budgeting and saving. The rest will follow.

And the only way to do this is by discovering where the money in your life goes and what it's being spent on.

I am constantly told "but I don't have enough left over" by people who say they want to have an emergency fund or save every month. Or who want to break the painful cycle of living paycheque to paycheque.

Many people - actually, I would say most - tend to look to future income and windfalls. They seek ways of earning more, which is fine in itself, but is born of the belief that they don't have enough to budget or save. The quest is always to have more to afford to live within their means. In other words, most people live the life to which they aspire, but they can't afford it. Living within your means, means living off of your current income.

Unfortunately, people are betting on the future; they live in hope of that bonus or lottery win to plug the monthly shortfall that they're accumulating. That doesn't always happen, and the consequences are sadly predictable.

But there's good news: we do have the money to save. We can have the money to invest. The big question is: are you going to find out what you are spending your money on? If the answer is yes, and you do, then are you going to change your money habits so that you free up some cash to save so you can invest and make your money work for you, and not just you work for your money?

It takes guts to make a commitment - and even more to stick to it and see it through.

Budgeting means that you will see what it is to live within your current means. Budgeting makes it easier for you to be honest with yourself and, I hope, with others.

The numbers staring back at you will speak volumes. The numbers will do the talking. I hope you'll listen to what they have to say.

Saving money is the core foundation of your best life. And budgeting is the essence of that foundation - it's what the foundation is made of. Every other financial and, therefore, life decision you make is born of your budget.

So, grab a pencil, or get your laptop and write down what fruit you want from your money tree.

Is it getting out of credit card debt?

A new home?

A fancy holiday?

Investing in the stock market?

Write down your financial goals. Then plant the tree, water and nurture it, and watch it grow.


Nima Abu Wardeh is the founder of the personal finance website www.cashy.me. You can contact her at nima@cashy.me

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