Having A Budget that Works

A budget that works and New Year Resolutions seem to have a lot in common – most attempts seem to end up in a puff of smoke shortly after takeoff. Many have come to conclude that budgets, like New Year Resolutions, do not work, or are not meant to work. Even governments with highly skilled technocrats seem to have challenges balancing budgets, much more so mere mortals brimming with emotions and impulses.

Having a budget in isolation hardly works. Without clear financial goals, and a commitment to becoming better is personal financial management through constant reading and practice, we easily fall back to old habits which convince us that budgetary discipline is not possible.

When you pay yourself first, you take excess cash out of circulation and make it difficult to feed your impulsive spending habits. It takes discipline to stick to your new disposable income (after taking out your savings). Without this discipline, you can self-sabotage by resorting to credit cards to fund your impulses. A budget cannot implement itself. We need to grow in the department of self-discipline to be able to make our budgets work. A financial goal helps us to remain focused.

If your long-term financial goal is to be able to maintain your standard of living after retirement (without your pension), your focus will gradually shift from where to shop on sale to where to shop for the best interest rates for your fixed-income investments. If you go on vacation once a year and want to be able to do that after retirement with or without your pension, you start to see things from another perspective and begin to appreciate the opportunity cost of spending your salary (capital) or liabilities rather than accumulate assets that make you richer and move you towards your desired goals.

When you consider the fact that your working days are numbered (you can actually calculate it down to years, months, weeks, and days), you cannot depend on your salary forever. You may assume your pension will be waiting for you when you retire, but what if? You may watch pensioners on television carrying placards and feel it cannot happen to you, what if those folks thought too that it cannot happen to them, then who will it happen to?

A clear financial goal puts the future in perspective and gives you control – the power to choose what you really want. When you spend as if there is no tomorrow, what if tomorrow comes? Cultivating budgetary discipline happens on the inside, when you align with your goals. Without goals, you cannot go very far no matter how good your intentions are. For your budget to work, you need to buy into your financial goals and make the necessary adjustment. The future you desire does not just happen. You have to make it happen by playing your part.