How to build a realistic budget that works for, rather than against, you and your money

12 Mar 2023

Budgets fail when they are not realistic, and guilt about spending is often the enemy of financial wellness. Author Sam Beckbessinger shares some advice on how to set up a budget that works for you, not against you.

Budgeting can be scary, and a good budget can be the difference between healthy finances and having too much month at the end of your money. Maverick Life spoke to Sam Beckbessinger, author of Manage Your Money Like a F*cking Grownup, who explains that setting up a plan to manage your money is less about counting cents and more about setting achievable goals. Here are her tips:

Be realistic and honest

When sitting down to draw up a budget, Beckbessinger says it is important to be realistic and honest from the beginning.

“When we talk about budgeting, often we have this idea that you should sit down at the beginning of the month, and you should open an Excel spreadsheet and write down hypothetically how much money you should spend on different categories in your life in this made-up ideal fantasy world, right? And we sit there with the best of intentions,” she says.

Beckbessinger labels this as “Future Me” – Future Me will not go out for coffee; Future Me will not eat take-out; Future Me will not buy new items, ever.

The problem with Future Me is that living within a strict money policy is not a realistic reflection of living. “What person in the world, when their friend asks ‘do you want to go get a coffee?’ is going to say ‘Oh hang on, let me check my spreadsheet,’ she explains.

“You’re setting yourself up to fail, and you’re setting yourself up to feel bad about yourself.”

Rather, Beckbessinger advises that people should understand how they make decisions as individuals and then find ways to make it easier to take control of their money.

“But if you actually look at the big picture of where your money’s going, it’s probably not the cup of coffee every day that’s your problem, right? It’s probably your rent; it’s probably your bills,” she says.

The first step is to track your spending and know exactly where every rand is going each month. Once somebody knows where their money is going, it is then easier to make another plan and reroute where some of that is ending up.

“Instead of sitting down with a blank piece of paper, and writing down a hypothetical imaginary list of all the perfect behaviours that some future version of yourself is going to do, start off with reality,” she says.

The top three

She notes that when people make a budget, they generally have three top priorities: housing, transportation and food.

“It’s useful to think about these things holistically, because they’re often connected to each other,” she explains. For example, it may be cheaper to live further outside of the city, but then the costs to commute will add up."

Therefore, Beckbessinger recommends seeing these three as a system that works together, and then finding ways to trim the fat off the system as a whole, where possible.

Read more in Daily Maverick: “Quick tips – how to budget during high-inflation”

Start with the big things

She uses the analogy of filling a jar with sand, rocks and pebbles. The best way to ensure everything fits inside the jar is to put the bigger rocks in first, followed by the pebbles. The sand goes in last, falling in the nooks and crannies between the larger items so that everything fits. Similarly, she recommends tackling the larger items on a budget first, and then moving down.

When trying to get spending under control, Beckbessinger explains that people often start with the small things that are making them feel guilty and try to cut those back. As it turns out, you can have your avocado toast and eat it, too.

“But if you actually look at the big picture of where your money’s going, it’s probably not the cup of coffee every day that’s your problem, right? It’s probably your rent; it’s probably your bills,” she says.

Instead of sweating the small stuff, Beckbessinger advises that people evaluate their bigger purchases and make sure they are getting the most out of their money. Automatic debit orders are other places money could be streaming out of an account unnecessarily, and cancelling those could save more than people realise.

Visit Daily Maverick's home page for more news, analysis and investigations

Build up a buffer for expenses

So, you’ve divided your money among your priorities, allocated funds for social events and cellphone bills alike, and then the unexpected happens: those big bills that aren’t as regular, but perhaps catch you off-guard when they roll around each year. From university fees in January to holidays in December, or tax bills and medical emergencies. These are more difficult to budget for, as they are unpredictable and too large to settle monthly.

For these, the author advises building a “buffer” by working such larger amounts into a budget, planning as best as possible for them, and then dividing the expense across 12 months of the year so that when they happen, a fund is easily accessible.

“There are always going to be unpredictable things that crop up in your life. And I think this is exactly why most budgets fail, because they don’t account for that.”

What about saving?

An old adage advises to “pay yourself first”, which reminds people that managing where money goes is as important as managing where it does not go. Beckbessinger recommends opening a second bank account to get control over saving money too. This account can be solely for savings, with an automatic debit order that sends savings directly out of the “spending account”. Another way is to use it as a place to keep “fun money”, so that spontaneous purchases for leisure and entertainment are not drawn out of funds meant for bills.

Beckbessinger acknowledges that it’s difficult to put an exact figure on how much people should be saving, but as a general rule of thumb, she recommends 5% more than someone is currently saving.

“Even if you currently save absolutely nothing, saving 5% a month is a huge win,” she says.

“When you’re young, although the amounts you’re saving tend not to be high, because you don’t have a lot of money coming in and out of your bank account, those small amounts saved earlier are the most powerful over the long run of your life.”

Personal finance is, well, personal

Finally, Beckbessinger acknowledges that everyone is different and, therefore, has different priorities.

“Setting a budget can be a very powerful thing… and can be a great opportunity to sit and reflect on your happiness and the design of your life. Is your money supporting what you want from it?”

And how does one know if they are in control of their money? Beckbessinger suggests that it is the difference between feeling panicked and stressed about where the money is going to come from, and feeling calm in knowing that there is breathing room built into spending habits.

“It’s a feeling more than anything, and being able to withstand the knocks of life.” DM/ML/ BM

Categories:

Tags:

DM is much better if you are signed in...

Business Maverick

Be realistic and honest

The top three

Start with the big things

What about saving?

Personal finance is, well, personal