Friday, 6 July 2012

Unrealistic budgeting expecations: Always be prepared to re-set your expectations

I have noted several times in my expenditure tracker posts that for some reason I have been unable to keep to my prescribed personal expenditure limit of $1,500 per month.  When I was setting my financial objectives for 2012 this seemed like a fair amount that anyone could live on however after failing to meet this objective even once over the first six months I came to the conclusion that I had woefully underestimated how much I realistically spent every month.

I completed a detailed monthly budget estimate of how much I spent every month (including all the lumpy expenditures which always seemed to throw my budget out) and found that I actually spend way more than $1500.  You can find plenty of good budgeting templates on excel for free and I will be uploading a free budgeting template to an excel valuation models website that I am currently setting up. 

My rough breakdown in expenses is as follows:

Item Spend Per Month
Household & Living $633
Transport $503
Health $235
Charity $93
Entertainment $857
Total $2,322


Of the ~$2,300 of forecast monthly spend approximately $1,500 is either contractual spend or a necessity spend.  I realise much of this has to do with definitions.  For example many people feel that a car and the related expenses is not a necessity however I do not live in an area with particularly good public transport so getting anywhere requires a car.   

The remaining $800 a month of 'luxury' spend is where I can possibly pare back if I wanted to be particularly frugal.
  • $250 of this relates to an annual overseas holiday which I like to take.  I confess that I am loathe to cut back on this.  I really enjoy travelling and do not like the idea of becoming a person who has a significant amount of money but who has never done anything with it
  • The remaining $550 relates to dining and alcohol related expenses and this is probably where I can realistically save the most money
For the remainder of the year I think I will report my expenditure tracker spend both with reference to my original objectives and my reset objectives.  My original and new objectives are listed below.

Item Old Objective New Objective
Shares $3,300 $3,100
Offset Account $1,600 $1,300
Personal expenditure $1,500 $2,000

I think the main thing that I have learned from the last 6 months is that you always need to give a budget a good chance to work out. Sometimes it is just a few months which are out because of lack of control or unexpected expenses. However if you can simply not keep to it regardless of how hard you try then the chances are that you have been unrealistic and should adjust it accordingly.

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