Wednesday, 7 August 2013

THIS is why I'm finding it so hard to remain below budget

Regular readers of this blog would know that at the start of the year I set personal expenditure goals and savings goals and try and keep to those goals.  I also measure those goals month to month on my expenditure tracker.

It has been an interesting exercise however I always manage to far exceed what I plan to spend on personal expenditure and I never seem to be able to invest enough as a result.  I had thought about what my personal expenses were and I thought I was setting a reasonable limit.

However in last month's expenditure tracker I suddenly realised that I may not have thought about how I spend money in the right way at all.  All the financial books and budgeting books you read talk about first budgeting for the essentials and then everything else on top of that becomes a luxury and in this way you can save a significant amount of money.

Then generally define essentials quite narrowly (i.e. those things you absolutely need) and I think, for many of us - this is what causes the problem.

I am going to define 'essential' differently...

From now on...I'm going to define essential as 'those expenses which I need or want to spend in order to maintain my lifestyle'

Purists and those who are very good at living on tight budgets will tell you this is a recipe for disaster...that this way of thinking will get you further and further into debt.  However after setting my goals and constantly failing at them even after making some quite dramatic changes (e.g. I stopped eating lunch out almost entirely - I pack a lunch every day and I think quite a lot about big purchases) I realised that I was thinking about it wrong.

All of us have a lifestyle that we like to keep to.  For every person it is different - however we all have expenditures which we think are important or that we are unable to change for a particular reason.

  • For example - I spend ~$100 a month on gym membership which is much higher than I could get it for...but I know what I'm like and if my gym was not right next to work I would never go and it would be an even bigger waste of money
If, like me, you have tried setting a budget and wonder why you keep busting through even through it may be because you have a whole heap of expenditures which you have to make every month which you don't even think about.

Go through the may be surprised

I was genuinely surprised at how much I spend before I even get to things like entertainment, holidays and other truly discretionary items.  I did a quick calculation and each month I spend:
  • $1,150 on living expenses including rent, a very cheap mobile plan, dry cleaning and groceries
  • $140 on donations (which I refuse to cut back on)
  • $430 on transport (including public transport, car maintenance, insurance and fuel)...add it up - this is the big surprise for me
  • $250 on health and fitness (including health insurance, gym memberships and hair cuts)
  • $70 just on on daily coffee each day
I have obviously rounded those (although did my calculations fairly accurately) and I realised that I spend ~$2,000 a month on these 'basic' items before I look at non-discretionary items.  It is not surprising therefore that I can never achieve my personal expenditure budget of $2,200.

Make this'll see what you're able to save money on and what you're not

If you have been trying to budget for a while you may find that you have already had all your 'easy wins' when it comes to saving money.  I have managed to reduce the amount I spend on mobile bills and on lunch every day although I moved out of home which costs me ~$700 more than I would have spent at home on just groceries and rent.

One of the hard things I have found looking at my list is that there is very little I want to cut back on and one of the challenges of earning well is that I don't have to cut back on anything.  Unlike someone that is struggling from month to month I do not have to figure out where to save money.  I like to donate money to charity, I need to go to the gym (I get fat really quickly!) and I like driving a car.

However, even though I will probably not be able to cut a lot out of this budget my goal is to cut $100 a month which I think is achievable.  I'm going to try and get a cheaper health insurance, get cheaper hair cuts and drive more economically.

If you are struggling month to month I really recommend making a full list of your expenses (especially the ones which auto-debit) and seeing where you can use a cheaper alternative).

What it means is that I probably need to re-evaluate my expenditure goals

In light of the process I went through I think I need to evaluate my expenditure goals.  I did this last year and I don't think you should ever be scared of it.  In the coming weeks I'll post up what my new goals for the year will be.

Have you ever gone through this process and discovered how much you actually spend?  What did you cut back on?

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