Saving Money & Wasting Less

Lesson 6: Budgeting

In this lesson we get serious about reducing and paying the bills we have, and getting our finances under control. We will look at the power of paying yourself, and then look at budgeting, and handling money more wisely and thoughtfully. The single most important thing to do in order to reduce or eliminate debt is to make a sensible budget and keep to it, as we learn in this lesson. I know it seems boring at first, but you will soon see benefits, and when you work out at the end of the year how much better off you are than you were at the beginning, you'll be hooked.

This lesson will save you a lot of money if you follow the suggestions carefully. If you can learn to live beneath your means, even by a small amount, you will be under less stress, and may be able to cut down your working hours, or even stop working altogether, giving you more time for your family, or other interests.

Paying yourself

Regardless of your situation, whether you're employed or not, retired, working at home, or on irregular/uncertain income, you can begin to take control of your finances by paying yourself.

Decide for yourself how much you need to pay yourself, and at what frequency you will be paid (regardless of the frequency you are actually paid).

Why do this? Because it gives you back the feeling of self-reliance, and because it takes away some of the power of whoever is paying you. Of course, you're still getting your income from your employer, the government, or your occasional contract work or wherever your money is coming from, but from that income you are making the decisions. Consider your salary, regular or irregular income as being placed into a holding fund, and it is from this holding fund that you pay yourself.

Let me explain by illustrating with a couple of fictitious examples:

• Harold has an allowance from his mother of $38000 pa after tax. He's worked out a budget (see the next section in this lesson), and decides he really only needs to earn $35000 pa (including the upkeep of his sportscar). His mother pays him monthly but Harold prefers to be paid fortnightly on a Thursday. His allowance goes into his holding fund, and out of that he 'takes out' $1346.00 every second Thursday to pay himself. He decides to do the transfer on paper and have only one account, so he keeps a record of how much he has in his holding fund, and how much he has in his 'pay' fund. He keeps his budget accounts on paper.
• Maude has a casual job modelling for a local sculptor. She also has an occasional income from selling her artworks. Her income is erratic and varies from month to month, year to year. She has calculated that for the past three years she has averaged $18000 after tax, and looks likely to make about that or more this year. She's done a budget and worked out she really only needs to earn $16000. Her income goes into her holding fund at irregular intervals, but Maude likes to be paid weekly, on Wednesday afternoon at 4pm. Being of the old school, she decides she wants real money, and so she pays herself $307.70 in a brown envelope every Wednesday. She keeps her budget accounts in cash in envelopes.

The point of this is that Harold and Maude both pay themselves the amount they want, at the time and frequency they want, which gives them a sense of control and dignity. They also pay themselves how they want. They could pay themselves by cheque, or transfer their pay to a separate account.

Because Harold and Maude are both living below their means, their holding funds will grow naturally, without them doing a thing.

It may be that you really need every cent you're being paid, but even if you pay yourself $10 a month less than your employer pays you, you'll be $120 better off at the end of the year. It's up to you. Take the power out of your employer's hands, and put it into your own. You decide how much and how often you will be paid (naturally up to, but not more than the funds flowing into your holding account). Decide what day payday is.

If you currently have a negative account, such as an overdrawn account or an overdraft, or if paying yourself will put your account in negative figures it would make most sense to keep a record on paper rather than drawing out cash to pay yourself. In this case your holding fund is actually in the red, but by taking control, you will soon change that situation.

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