So, let’s talk about budgeting. And no, I don’t mean acting like a sniffer-dog tracking every cent…
I was having coffee with a friend of mine when she told me she didn’t need to budget.
“I know what I spend. I have it all under control. I don’t need a budget, I have no debts”.
“Fair enough,” I said “but I think you are missing the point of budgeting”.
She gave me quizzical look.
“I think we should run a little experiment. Just to prove a point” I said, “How much do you spend on discretionary items during the week?”
“Well, I think around $150. Including food, drinks, shopping, parking and fun stuff” she said.
“Sure. I’ll give you $150 cash, and you can spend it anyway you like. You don’t have to save any of it and you don’t have to keep track of what you spend it on. The only rule is you can’t use your credit card or any other money”
“Shouldn’t you be telling me how much I should save? Not how much I should spend?”
She smiled. “Easy” she grinned.
A week later I met my friend at the same café. She looked disheveled.
“What’s wrong?” I asked as she sat down in a huff.
“Well, it’s this cash thing,” she grumbled, “I thought it would be easy because I didn’t have to save anything. I could spend it all”
“And?” I asked.
“Well, I spend everything in the first 4 days. Then I had no money for Friday night drinks, Saturday movies, or Sunday brunch!” her voice was getting hysterical.
“I thought you said $150 was reasonable?” I queried
“Well. Yes, it was. But there was all this money in my wallet. And I just had such an impulse to spend it”.
“This is called budgeting” I said “it’s not only about saving money, it’s also thinking about the future” I explained. “You spent all your money in the first past of the week, because you failed to think about the end of the week. Keeping an eye on future events is important for money management”.
“Yes, but I didn’t save any money, so I couldn’t have budgeted,” she rebutted.
“Budgeting is about acknowledging future events which require resources. It’s doesn’t have to be money. It could be saving the wheel of brie in the fridge for Friday night drinks, even though it’s only Tuesday”.
“So, when I spent the cash at the start of the week, I should have been thinking about Friday and Saturday?” she asked.
“Yes. You should have thought about when to spend the cash, not just about the amount of cash you had” I explained.
So, although it was frustrating for my friend, she did learn an important lesson.
Budgeting is about looking into the future.
And the first step is acknowledging that the future is just as important as right now…