Tuesday, 16 September 2014

Life lesson: Always put buffers into your budget

Having a tight budget this year and trying to achieve a lot with it has had some interesting (and unforeseen consequences) which I only really realised when I looked at myself in the mirror this morning and this was the thought that came to mind:

"I look like I am struggling to make ends meet"

My shirt is frayed, my suit hasn't been dry cleaned in far too long and my tie looks like it has been run over by several cars.  I really wish I was exaggerating but I really do look down on my luck which is crazy...

It's also not great for my career.  The way you dress and carry yourself is incredibly important to how you are perceived and this is definitely not the look I want to be going for.

So how did this come about?

I'm going to blame it on my budget and more accurately my focus on my budget this year.  In prior years I have had a fair bit of flexibility in my budget and when I have run over on some areas it hasn't really affected any other areas.

The big change this year is that I have accounted for almost every dollar I am going to earn and I have some pretty aggressive targets for what I want to achieve including:
  1. Buying an engagement ring
  2. Buying a sports car
  3. Saving for a wedding
  4. Going on a big overseas holiday

If I have budgeted for all of this...what's the problem?

The problem with budgeting (as I already knew) was that things rarely go to plan.  I have had an incredible number of weddings this year which has really blown out the amount I expected to spend on wedding gifts (and entertainment, as the cost of bucks parties really adds up) combined with the fact that I haven't controlled my entertainment expenses as much as I should.

Given I am still really trying to achieve all of my goals the following happens:
As I discovered this morning though...sometimes non essential items become essential if you put them off long enough.

In the end budgets have to balance...

Well...technically I could run my own personal deficit and pull money out of savings or take on some debt but I'm not that type of guy and I'm focused on balancing my budget.  This means something has to give.

As I've discovered, my clothing budget (especially my work clothing budget) should not be the one to give.  But what does?  I hate the idea of cutting back on my big goals for this year (and I've already overspent on the engagement ring / proposal).

I think the thing that is going to suffer is my sports car.  It is the biggest 'unspent' amount that I have coming up in this year and also has the most flex when it comes to how much I spend.  I confess I knew this decision was coming for a while but it still hurts to make it. 

What have I learned?

The biggest thing I have learned from allocating every dollar and then trying to stick religiously to a budget for a whole year is that things don't go to plan and often the causes are outside your control so you need to have a buffer in your budget and the buffer needs to be significant.

This buffer needs to be 'real'.  I.e. it can't be an amount you allocate to savings because if you are anything like me you are going to hate the idea of taking it out of savings.

Budgets really impact your behaviour which can be a good and a bad thing.  Your budget therefore needs to reflect both who you are (and your mentality towards saving) but also the reality that things don't always go to plan.

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  1. Hmmm love the post here 90M, it is very tough or can be I agree.. I've been reasonably good with my "budgeting" I allocate $290 a week for misc or entertainment expenses (usually most of which will get spent on a Friday or Saturday night) then there's a certain amount I allocate to rent, travel, a get out of jail fund, charity, a dating or future wedding account and an education one..

    Luckily I've never had the desire for a sports car, travel is my one big luxury and I'm unlikely to ever want or desire a sports car, to me I couldn't bring myself to do it (with it being a big depreciating asset). I wouldn't get that much happiness out of it anyway.. I'm getting the feeling that the girl I do meet probably won't be that concerned with all the fancy things as well and will potentially love travelling and the outdoors but time will tell on that one :).. It is great to go to a fancy restaurant every now and then though I admit

    A long comment I know but an interesting topic

    1. Do you have any fat in your budgeting or do you pretty much spend what you budget? I think I got into trouble because I budgeted against what I spent and then expected things tend to come from left field.

      I've wanted a sports car for years (I think I've been posting about that on this blog for AGES). I know financially they are really silly but I love driving.

      I don't think I'd ever attract someone else with a sports car - I'm not really getting it as a status symbol. My fiancee is much like you...she doesn't care if I have it and it certainly doesn't have any impact on my appeal to her (but luckily she isn't opposed to the idea)

  2. I agree with your post - I started using your "smoothing" method for my biggest monthly expense which was the $1,000 a month I am paying for daycare for my 6 month old son as my wife who is a teacher had to go back to school!

    1. WOW! I did not realise that daycare was that expensive! How on earth do people with 2 or 3 kids manage it?

      Congratulations on having your child by the way! I remember in a previous post your wrote about the budgeting challenges of having a child...I didn't realise it was such fresh experience!

      Smoothing definitely helps though. I think buying the engagement ring would have been much more painful without it.