Saving over Spending

You may remember I did a blog a little while ago on budgeting and the importance of budgeting brilliantly. Ever since I wrote that blog I have wanted to address the problem many people have of spending over saving.

Someone once told me – “life isn’t about what you earn it’s about what you save” and I think this statement is so true. If you earn a lot of money and just spend it all, you will be no richer than the person who made less money than you but knew how to save.

As the money you are making goes up your spending doesn’t have to go up with it! Sadly for many people when they get more money they decide to take on finance deals, sign big contracts or mortgages for property and buy brand new big ticket items without shopping round for the best deals.

Those of you that are in a fortunate place of earning good money, I implore you to plan for the future, as there is no guarantee that you will be making this money for the rest of your life. If your earnings do take a hit like if you lost your job or your company started seeing tough financial times, the companies that have given you credit are still going to want their money and you are still going to have to find a way to live.

I’m not saying don’t go and enjoy life and the rewards of your hard work, I’m just saying make sure you are prepared if life were to change in an instant. Have savings so you can live your retirement years as well as you lived your years in employment. Money can come and go but if you learn good money management skills they will never leave you and you will be able to deal with whatever comes your way.

Budget

One skill I have learnt this year is budgeting. Now I thought I knew how to budget and was good with money before this year, but boy was I wrong. I never went in to my overdraft, I had no finance deals or loans and every month I would put some money in savings, but I was not making the most of my money.

One thing I have always known is that American households seem to be much better at budgeting than us here in the UK. So with this in mind my wife got me reading an American guide to budgeting by Dave Ramsey. Here is a link to the first thing I read by him:

http://www.daveramsey.com/media/broadcast/mytmmo/pdf/guide-to-budgeting.pdf

Now yes some of this is American-centric with college funds and the like but there are a lot of principles you could and should adopt.

Before each month my wife and I sit down and plan how we are going to spend / invest every penny that will come in. We look at what things we have coming up and what things we need to pay for that month and budget accordingly.

We try to avoid using the debit card at all costs and we always know how much we have left in each budget as we go, from food to energy we know what we have left. After we have done our budget we then work hard to stick to it and at the end of the month we assess where it has gone wrong or right and if we need to tweak our budget for the month ahead.

People seem to think that budgeting means not having fun but it doesn’t. The budgeting system we use encourages us to allocate a fund towards going out and doing things. We just know at the beginning of the month how much we are going to spend on having fun.

I think if you aren’t in a position to increase your income the way to improve your finances and to do more is to budget better. Through this system, budgeting is now a joy to me and not a chore. If you enjoy managing your finances and have a range of short term and long term goals budgeting will be fun.

The one thing budgeting in this way has done is made me proud. I feel so good about the decisions we make and the things we buy. We achieve so much now and will achieve so much more. Instead of thinking we can’t afford things now we are thinking that we can and putting in plans to enable us to do so.

With this system in place we know if and when our income ever increases that we will be able to make the most of that too and because we have our current income working so hard that any extra that comes in we will be able to invest in to bigger projects we have.

Don’t get caught in the mindset of thinking that increasing your income will solve all your problems and make everything better, look at your current income as there might already be a way that you can afford to do what you want to do.

Just as a note there are many schools of thought on budgeting and many different voices this is just one we found through a friend that works for us. The key with any system is that you really look deeply in to your finances and how to manage them best for you.