I’m going to kick this blog off the same way you should be kicking off your path to financial freedom. Now I know this isn’t the most exciting topic to cover as an opening post, but it is the most important step to taking control of your finances, and it’s the first step everybody should be taking on their journey, whatever it may be. Are you already on your financial journey? Well, you should be budgeting already and if you’re not, you’re doing it wrong. If you don’t budget your money, you could be in the highest paying career you can imagine and still end up working to 65, living on state pension and eating baked beans 3 times a day. In fact, it’s often the highest earners that are the most reckless with their money, so they should be the first to budget where their money is going!
“I spent a lot of money on booze, birds and fast cars. The rest I just squandered.” – George Best
This has to be one of my favourite quotes from any football player (no, not “soccer”). Sadly, this is an all too common occurrence for the rich and famous. Ever wondered why so many rich people end up broke? Because they don’t worry about their spending, they think they will always have enough coming in to cover what is going out, until one day they look in their bank account and realize it’s all gone. Usually, they don’t really know where it’s gone either. In some sense you could argue lower income households actually have more of a chance of keeping their head above the water, simply because they have to worry about where they are spending their money and make a conscious effort to keep their spending under control. In essence, they are forced to budget their income, as otherwise they simply wouldn’t be able to stay afloat.
I get it, budgeting is at best boring and at worst a self pitying journey of embarrassment into the depths of your delusional spending. I mean, who doesn’t love analyzing their bank statement on a monthly basis, seeing how they spent $100 on a Friday night at the local bar, before blowing another $100 at the casino trying to win it back, then $50 for the taxi home and another $25 ordering the mandatory post-night pizza to eat your sorrows away. It’s painful, embarrassing and often just down right degrading. However, it has to be done and once you’ve gotten over the first hurdle, it gets easier and easier each and every day.
Can’t I just Save Money Every Month and Forget the Rest?
Sure, you can do that. You can put aside $500 a month and spend the rest however you damn well please. In fact, doing so puts you ahead of many people who put nothing aside. However, you might as well just say to yourself “can’t I just accept mediocrity when instead I could be a goddamn millionaire retiring in my 40’s?”
Why are people so hell bent on getting a great education and working their way up the career ladder, only to turn a blind eye when it comes to actually spending that hard earned money, often times using it on useless crap they don’t need? I can only assume it’s because they feel they’ve earned the right to spend their money however they please after working hard, so they think they can treat themselves to whatever consumer junk it is they feel like buying this week. More power to them, they can do that if they want. But when I’m retiring 10-20 years before they are and they ask “how the hell did you manage that?” My answer will be that I didn’t blow all my money on useless shit for 25 years! Instead I budgeted my money, was careful not to buy “stuff” I didn’t need and instead put that money towards my future.
So, if you’re sick to death of hearing the word “budget”, tough! It needs to be hammered home and is easily the most important step to getting your finances in order, and the first step to financial freedom.
So, Why Budget?
- They ensure you don’t spend money you don’t have – If you live life wearing financial blinders, you’ll never know if you can afford that $10,000, 24 jet, touch screen, remote controlled, voice activated, WiFi enabled hot tub for your patio (hint: you probably can’t).
- They create a financial roadmap – Budgets let you know where you came from and where you’re going. They keep your eyes on the prize and focus your attention on obtaining that $1 million mansion (or crackshack, if you live in Vancouver) you’ve always dreamt of.
- They force you to look backwards, and forwards – Budgets make you analyze your past, present and future expenses and devise a plan to reach that Big Hairy Audacious Goal. For example, you might be shocked, and hopefully embarrassed, when you realize you spent $1,300 last year ordering the Double Ristretto Venti Half-Soy Nonfat Decaf Organic Chocolate Brownie Iced Vanilla Double-Shot Gingerbread Frappuccino Extra Hot With Foam Whipped Cream Upside Down Double Blended, One Sweet’N Low and One Nutrasweet, and Ice. That, I’m reliably informed from Quora, is the longest possible coffee order at Starbucks.
- They allow you to anticipate unexpected costs – Budgets allow you to predict when a certain expense is going to arrive, and prepare for it in advance. Now it can’t help you if your dog decides to attack a porcupine on your favourite hike (though pet insurance will!), it can certainly help with large one off expenses like car insurance, vacations and everybody’s favourite splurge fest, Christmas.
- To live a stress free life – If you are mired in debt or living paycheck to paycheck, the stress you are going through is palpable. A budget allows you to plan where your money is being used and eventually develop a nest egg big enough to provide a financial buffer for when the tough times come. Got fired from your cushy job stuffing your face as a food critic for your local newspaper? Pah! No biggie, you’ve got a giant investment portfolio backing you up.
- They are the cornerstone of financial freedom/happy retirement – I’m going to stick my neck out and say you will not reach financial freedom or a worry free retirement without some sort of budget to guide you on the way.
So there it is. Don’t be a financial pleb and actually pay attention to your money. You’ve worked all your life to have that money in your bank, so why go blowing it all on shit you don’t need? Put your money to work, invest it and enjoy the benefits of a passive income stream that will one day be big enough for you to be able to give the middle finger salute to the working life.
So now you have the reasons to start budgeting, it’s time to take the first (and often most embarrassing) step, facing the truth about where your money is going.