Why automating your finances will make budgeting easier

Budgeting! Just the word can make people run for the hills. Budgeting is associated with a lot of negative things. Things like feeling guilt over your purchases, restricting your lifestyle and all around not having a great time. But I think It’s time we changed the rhetoric around budgeting.

Instead of focusing on a budget being a restriction, instead I like to focus on the fact that a budget lets you direct money to the things in your life that are the most important

It doesn’t matter if you bury your head in the sand or not, you only have a certain amount of money. By budgeting, you make sure that money is being directed to things which bring you the most joy, instead of being wasted unintentionally on things that aren’t adding to your life.

Let me give you a practical example. My wife and I sit down every 6-12 months and plan out our budget. This year we discussed two big purchases we wanted to do.

1. Go to Washington DC and New York for a holiday (and a conference)
2. Buy a new car.

Reviewing our budget, we realised that we really could only afford one this year whilst keeping our budget on track. This led to some in depth discussions about what was more important to us, the trip or the comfort of the newer car.

Needless to say, I now drive around in that old car humming the Frank Sinatra classic “New York, New York” remembering our trip fondly.

One way of looking at this is that I missed out on getting a new car

But I see it very differently. On reflection, the car isn’t that important to me. I’m happy to wait another year or two to replace it and it works fine. Obviously, this may be different for you and there are a lot of variables at play here. If the car was breaking down, maybe I would have seen things differently. The point is though, I directed my limited resources to the thing that bought me the most joy. That is the power of budgeting.

But how do you stick to your budget without it taking over your life?

Once you’ve decided on a budget though, how do you execute on it and not have to constantly be tracking your numbers every day? In our opinion, the trick to a good budget is automating your finances.

Knowing my budget doesn’t include a new car is easy to keep track of, but how do I stop myself from overspending on things like takeaway and coffee, clothes or other things I enjoy?

We recommend to our clients to have two main accounts. These are:

• The Main Bills Hub; and
• Your Spending Account.

The Main Bills Hub is the account where your pay is received into. It acts as a central point for all of your income and expenses.

Your Spending Account covers your day to day expenses like restaurants, coffees and groceries.

Why do you separate these?

Budgeting can be hard work. Each time you make a purchase, you don’t want to be reviewing your budget in its entirety.

We recommend separating out your day to day expenses to a Spending Account because these are the expenses that you need to think about every day. It’s very easy to overspend on day-to-day coffees, food or even by moving these expenses into your groceries. By limiting how much you have in your Spending Account, you make sure that you don’t overspend in these areas.

Your Main Bills Hub is where your salary is received and money is used for bills and those expenses that aren’t day to day. Whilst you need to think about this regularly (we recommend at least each time you get paid), you don’t have to worry about this as much as your Spending Account. Each time you get paid, simply sit down and review your expenses for the period and whether this is consistent with your goals.

By automating your finances into two separate accounts, you remove the stress of having to worry about your entire budget

So lets remove the stigma around budgeting. Budgeting will allow you to direct your money towards the things that bring you joy. Once you’ve worked out what they are, by automating your finances, you can make sure that you are sticking to your budget without having to constantly be concerned about whether something is ‘in the budget’.

As always, if you have any questions, please reach out.

This post is from our resident Financial Planner Ben Brett, check out his details in the About Us section.

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Posted in: Ben Brett, Financial Planning