It’s Federal Budget time again and everyone seems to be getting all excited over the changes we will see in the months ahead.
No matter what changes the Federal Budget contains though I think we can be sure of two things;
- Not everyone will be happy with the way the government plans to raise and spend money.
- The Federal Budget will not really make that much difference to you personally (I would suggest that very few people can recall a Federal Budget that really made a major improvement in their lives financially; one that really took the pressure off and improved their financial destiny).
Over the years there have been people who have seen benefits that impacted their lives for a season because of the Federal Budget, e.g. recently new mum’s received a maternity leave breakthrough, but when all is said and done, the Federal Budget is NOT going to be a life changer or the catalyst that turned you into a multi-millionaire.
I have a motto that says ‘Control what is controllable and the uncontrollable won’t take control of you’. In other words, if your finances are in a mess it won’t take much to put you into a total tail spin. On the other hand, if you have your day to day expenses all planned for and you have money allocated to make the predictable payments when they are due and out of the blue a few unexpected expenses occur you will be able to deal with this with much less stress and hassle.
If you think about the government’s budget; You have no control over decisions made by the federal government so focussing on their budget and hoping it will deliver you from financial hardship and onto ‘easy street’ would be foolish to say the least.
So if that is the case what should you be doing now that everyone is at least talking about budgets?
Since you do have control over your decisions and your budget, that is where your success or failure will come from. Your budget is the only place where changes can make a vast difference in your financial destiny. It’s where you make decisions about what you will choose for you and what you won’t. It is about the choices that lead to either wealth or poverty over the longer term and it is the foundation stone your life’s financial destiny is built on.
Accept the fact that it may not be very sexy but it is critical that you have a personal budget plan if you want to gain personal financial freedom!
Let’s face it; wealth does not arrive by accident and if it does it leaves by accident as well!
So HOW should you approach your personal budget planning if it is that important?
Well, there is the ‘two dimensional’, almost useless budget that most people try because they were never shown any better and then there is the ‘three dimensional’ amazingly effective budget that can totally change your financial future for the better.
Let’s look at them both and compare.
1. ‘Two Dimensional’ almost useless budget
A Two Dimensional budget looks at Income and Expenses. You write down your income and then you list all of the expenses you can think of, averaged down to the frequency of your income.
E.g. if you get paid weekly you list Telephone as maybe $25 per week even though it gets paid monthly. You list Electricity as maybe $35 a week even though that gets paid quarterly.
You add up all the expenses which have been averaged down to your pay cycle and subtract this amount from your income and hopefully you find you have less expense than income. If not you go back and make some changes until eventually you have balanced the numbers.
You then have a document that mathematically proves you SHOULD be able to make ends meet, but the reason it is almost useless is that it does not show you HOW to make ends meet!
I liken having this information to doing all the mathematical calculations to find out if a jet will fly and then not knowing how to fly it! Also pretty useless information if you were hoping to go flying.
2. ‘Three Dimensional’ life changing budget
A three Dimensional Budget not only looks at Income and Expenses, it also includes Timing and this makes all the difference.
So many of your life’s expenses are predictable; if you line-up last year’s bank statements in chronological order (maybe down the hallway), and start colour-coding the transactions…. maybe use Green for Payday, Red for Electricity, Blue for Groceries, Pink for Petrol and so on…. when you are done you will see that the ones you did not colour-code are the ones you just decided to do for fun or that took you by surprise. You will also notice that all the coloured ones create a pattern.
It won’t take too much brainpower to realise the pattern will repeat again next year because these are all the repetitive predictable expenses we call Bills!
If you think about it, using the information from last year’s bank statements YOU CAN PREDICT THE ‘BILLS’ PART OF YOUR NEXT YEAR’S BANK STATEMENT IN ADVANCE!
If you can predict it you can also have some choice about what you want it to look like as well!
Once you have decided what you want it to look like you can use the information from the colour-coding exercise to plan your target bank balances for your bills for every day of the next year.
You can do this with a calendar and a calculator, a spreadsheet or specialised software called Simply Budgets. When you have done this you will have a Road Map for your finances for the next year.
No more stress!
In less than 5 mins a week you can compare where you are with where you planned to be.
Making decisions to pop in a little luxury item now and then will be so simple and free of stress you will start to see why the old Two Dimensional budget is almost useless!
Whether you have debt to deal with or not, having a roadmap makes it hard to get lost!
And as for the Federal Budget, let’s just let the politicians keep playing politics over that and in the meantime we can do a much better job looking after our own!
That’s all for now. Have a goody.