Given the theme of the month, I think it will be a surprise to no one that The (self-) Maintenance Team is going to be about budgeting. So many people cringe at the word "budget" that I almost hesitate to use it. But financial stress is one of the most substantial sources of worry in our adult lives and we can't shy away from this tool simply because many people have negative associations with it. In fact, I think that the assumptions and judgements people have about budgets are part of what keeps people stuck in cycles of debt and money stress; so, I propose that we just face it straight on.
Budgets are your friend, even if you don't like them.
Budgets believe in you, even if you don't believe in them.
Budgets are a tool that you can use and adapt to your individualized circumstances and needs.
Budgets do not control, restrict, or punish anyone.
If you have anxiety at the mere thought of creating a budget, then I would like to gently suggest that financial stress is having an impact on your mental health.
Your money is not a measure of your worth or success as a human! It too is a tool that we need to use effectively in order to have our needs met and to achieve our goals.
Avoiding looking at your money - how much is coming in and how much is going out - is as effective a strategy in life as is sticking your head in the sand. Worse than that, the avoidance may be making your anxiety worse - I'm anxious, so I don't look, I assume that my situation is probably dire because I haven't been looking, and my anxiety gets worse, so I continue not to look.
A lot of work in mental health practice is about setting aside our judgements in order to simply be curious about our reality. You cannot change what you are not aware of - awareness is always a first step. Whether that's awareness of our thoughts, our relationship patterns, our toxic-traits, or our spending habits. I therefore see budgets as a tool to help me suspend my judgement and check my emotions about money so that I can look with curious objectivity at my financial realities.
What you see might make you happy and it might make you upset. But the tools you use to objectively look at your money didn't make you feel that way; the objective reality did. And it was probably already making you happy or upset before you used any budgeting tools to spell it out in objective terms.
The value of the tools then is that they empower us to be intentional about where we want to go next with our finances. They make us aware, so that we can make choices, plans, achieve goals, etc.
So, let's talk about those tools.
I'm not a financial guru, which is why I referred you to Gail Vaz-Oxlade in the last post for more sophisticated financial advice and strategies. But, here are some basic budgeting tools everyone should use:
- Average monthly income and expenses - just look at the last few months and take an average. If that feels overwhelming, you can do an estimate based on known fixed expenses and approximate variable expenses and income. The estimate will be inaccurate, but it will be closer to the truth than you were before, so start there.
- A system for tracking actual income and expenses, in (close to) real time. This enables you to see how close or far from reality your average estimates were.
- If your average income is less than your expenses and/or you have debt that you owe, you'll need to come up with a plan for reducing your expenses and/or increasing your income and paying off the debt. This plan is what a budget is.
- If your average income is more than your expenses, then you have options that will help you start to stress-proof your financial life. You'll still need a plan (a budget), but you get to decide and be intentional about what you want to do with the extra.
- Financial gurus smarter than I am recommend putting aside some for emergencies, planned larger expenses, and savings for retirement.
And that's it! That's all you need to get started. Just a snapshot of what your situation is (do you make enough to cover your expenses or no, and how much debt do you have), a tracking system for what's coming in and going out, and a plan for spending your money that you can compare yourself to. The budget is the plan. The tracking of money in and money out tells you how close you were to following the plan. A surplus in the plan, and sticking to that plan, will enable you to pay off debts and save money for emergencies or big purchases/long-term savings.
One last note about how you track these things: don't rely on bank and credit card statements, nor your current bank balance, as the measure of your cash-flow. It won't give you the real-time feedback you need. For example, if I'm deciding whether I can go out to a nice dinner at a restaurant with my friends based on my bank balance then I might think I'm good to go. But if the money in my account was partly savings for an expense I know is coming up, then spending that money will have sabotaged my plan for being able to pay that later bill without using credit or causing my budget to be short at a future date.
There are many apps that you can use; I've tried some of them and never found one to my liking. So, I created a budget in Excel - I worked in an administrative role in my early 20s and developed good proficiency with that software, so it's become one of my ride or die tools. I also have a very old-school pad of paper that I use to track my ongoing expenses. So in practice this is what my system looks like:
- Excel = the budget plan. How much is coming in and how much is allotted for the different expenses and savings goals I'm working on.
- Paper = I put the amount of money I've budgeted for "life" expenses for the pay period (every 2-weeks in my case) at the top of the sheet. Every time I purchase something, I write it down (and write down if it went on my visa, m/c, or paid cash/direct withdrawal) and subtract the amount from my budgeted pool of money. As I see the total going down, it lets me know if I'm over spending or if I've been managing my expenses and can afford to splurge on a night out. At the end of the period, I total up any of the charges I've put on credit and make a payment to the credit card company for that amount of money - I don't wait until I get a statement. This way, I'm able to maximize the point benefits that come with a credit card without incurring any interest charges on my purchases.
You'll notice that in this plan, I've got a separate pool of money that I'm deducting my expenses from. Money for condo fees and car insurance and all those other fixed monthly expenses have already been factored in and that cash is sitting in my bank account, waiting for those automatic withdrawals. That's why I can't rely on my bank balance to tell me whether I can afford to splash out at any given time. When I first started doing this, my budget was tight! I was paying off student loans, a car loan, and my income was lower than it is now. But my awareness of my tight budget isn't what made me stressed; the thing that caused my stress was that I hadn't been paying attention to my money, spent more than I could afford, and then incurred debt and interest charges. That made me stressed. Once I started following a budget and tracking my spending, I could still treat myself but it just meant that I might have to defer some treats till the next pay period. It actually helped me to reduce my impulse spending, since often the thing I really wanted in the moment wasn't so compelling a week later when I could afford it.
So I encourage you to be brave, to face the anxiety you might experience when you first sit down to create a budget, and remind yourself that the budget doesn't cause the anxiety. The budget is going to be the tool that helps you identify the source of the financial stress and the plan to overcome it. If you need some encouragement, Gail's books are available (often from the library) and old episodes of her show are available on YouTube as inspiration. But if your anxiety is more intense than encouragement can overcome, then I encourage you to speak with a mental health professional. Your employer benefits may provide coverage and, for those without work benefits or private insurance, many cities have low-cost options available. If you live in Alberta, Canada and you'd like to work with me, feel free to check out my website:
Calder Mental Health Services. I offer free 15-minute consultations by phone or video, so that we can see if I'm the right person to help you with your needs.
Take care and I hope you're continuing to enjoy the holidays by focusing on low and no-cost options for making the season festive!
Petrina
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