This is the definition of a personal budget.
It’s a very useful definition, because it makes three important distinctions:
Firstly, this is a personal budget.
It’s purpose and form is quite different to the budget you create for your business.
Secondly, your personal budget is not just something you create and then a tuck in a bottom drawer, it’s an actionable plan that, if followed, will help you achieve financial and lifestyle goals.
And lastly, your personal budget is forward facing for a 12 month period, and is broken down into months.
It allocates your future personal income, including salaries, drawings and dividends from the business, towards personal expenses, savings and investments, and the reduction of personal debt.
Put really simply, a personal budget is a plan that lays out how you will spend and save money.
There are many benefits of having a personal budget.
Some of these are obvious and are financially focused.
Others are focused on reducing stress and improving communication with your significant others.
The value in having more control over your financial future cannot be underestimated.
Focusing on your budget brings your focus to something you can have real control over.
As I said at the beginning of this session, personal budgeting helps you focus on your money goals and creates a better awareness of where your money is going.
A common comment we get from clients when they look at their annual accounts and see their personal drawings figure is, ‘We can’t possibly have spent that much money last year’.
If you’ve ever had this thought, don’t worry - you’re in very good company!
This is a sure sign that by spending just 60 minutes each month drilling down into your personal spending, you’ll have greater awareness of where your money is actually going.
Having money goals and an awareness of how much money you are spending, and on what, creates better money habits, which in turn helps you manage debt levels.
This enables you to achieve your wealth goals.
A personal budget also acts as an early warning system because you can anticipate upcoming costs.
Having a budget is so important in regards to communication with your spouse.
According to the marriage guidance experts, finance conflict is in the top three most common argument topics, along with parenting and sex.
At the end of the day, if you have a budget and you use it as one of your wealth creation tools, you will end up with more money and arguably less conflict and stress.
So…if having a personal budget is such a smart thing to do, then why don’t we aren’t we all doing it?
Here are the top seven reasons why so many of us don’t have a personal budget.
Setting up your annual personal budget and reviewing your progress each month is not a time-consuming process.
There are some simple things you can do to make things easy on yourself.
Firstly, make sure all your personal spending comes from one bank account or credit card and try not to pay personal expenses out of business bank accounts.
That way, you’ll only have one spending source that you’ll have to track.
Secondly, get hold of a simple budget template to take the work out of setting one up.
We’ll provide you with a very simple template at the end of this session.
As an alternative, you could subscribe to a budgeting app such as Wally or Goodbudget.
You could even go one step further and join a specialist personal budgeting coaching programme, although this step isn’t for everyone.
Many people don’t like the limits they feel a budget will place on them.
Think of it as a spending plan instead of a budget.
It should be the exact opposite of confining.
It’s liberating because it results in guilt free spending because you know other dollars are already allocated to your expenses.
You’ll no longer have the fear you might run out of money before the end of the month.
If your problem is simply that you don’t know where to start, then a simple budgeting tool and some online training is the solution.
There is no doubt that money can be a cause of conflict in a household.
This simple fact prevents many couples from even talking about budgeting.
But conflict around money doesn’t resolve itself.
A personal budget is one simple step you can take towards a healthier relationship with money.
Budgeting can be scary at first.
You may not want to find out the cost of your coffee habit.
However, sticking your head in the sand isn’t the answer.
Knowledge is power.
It’s healthier to deal with the truth and move on positively.
Pride is an issue for some of us, but don’t let your financial future be harmed because of your preconceived notion about who needs a spending plan.
We all do.
I totally understand how easy it is to let budgeting slide.
Watching a movie sounds much more fun than doing a budget.
Set a monthly calendar reminder to spend an hour each month reviewing your budget and actual spending.
Understanding the benefits and building the habit are the keys.
The first step in personal budgeting is to set up your 12-month Personal Budget, with income and expenses broken down on a monthly basis.
This can be done in an Excel spreadsheet, or by using one of many personal budgeting apps.
You may want to reference some personal budgeting apps you’re comfortable recommending at this point.
Or, you may prefer to just position the Personal Budget Template as published by The Gap.
First, enter your monthly income.
Next, enter your expenses, line by lime, within categories, so that you can see your monthly spend for each category.
Seeing how much of your income needs to be allocated towards food, for example, can be very empowering.
It’s likely you’ll have a good understanding of your monthly income from drawings from the business, wages, and rental income, however, you might not fully understand the extend of what you’re spending each month.
To get a better idea of how much you’re spending and what you’re spending it on, it’s a good idea to start by analysing your personal bank accounts and credit cards.
Be prepared for a shock in some categories!
If you would prefer to budget on a forward-facing basis, be sure to include big ticket items such as insurances, rates, and school or university fees in the months in which they normally fall due.
When budgeting your debt repayments, this is your opportunity to plan for increases (or decreases if necessary), according to cash surpluses and your wealth creation plan.
Your personal budget goals may be to accumulate sufficient cash surplus to invest further in your business or other investments.
This is your personal budget, and it needs to reflect your overarching family goals.
Open the Personal Budget Excel Template by holding Alt and Tab simultaneously then, while continuing to hold Alt, click the Tab button to move to the Excel spreadsheet.
Letting go of the Alt button will open at the highlighted programme, i.e.
the Personal Budget Template.
Build a simple personal budget, using the instructions below as your presenter script:
This is our Personal Budget Template, which we’ll provide to all of you today.
It’s really simple and easy to use, so I’ll quickly run you through it using some fake data.
First, select the year ending date.
For example, if we want our budget to start in September, select the year ending 31 October from the dropdowns.
This will automatically update the template to begin in September.
Then you’ll enter your name and click the Begin Budget button.
This takes you to the first input field.
The next step is to enter your monthly income.
The fastest way to do this is to select the payment frequency from the dropdown and enter the appropriate amount.
Let’s say that we receive income from two sources: Firstly, we receive $10,000 each month in drawings from our business.
Select ‘Monthly’ frequency and enter ‘10, 000’ in the Amount column.
You’ll notice that $10, 000 has automatically populated in each month.
We also anticipate receiving a dividend from the business, $6 000 in November and May.
Select ‘Manual’ from the Frequency dropdown and enter $6,000 in November and May.
Next, we need to enter our planned expenses.
Expenses are listed in 9 categories:
Household
Food
Wearables
Children
Medical
Insurance
Transport
Lifestyle
Debt Repayments
Let’s start with our household expenses.
Once again, the fastest way to do this is to select the payment frequency from the dropdown and enter the appropriate payment amount.
I’ll just enter a few expenses here to show you more of the functionality.
Enter:
- Mortgage interest – Monthly, $ 1, 750
- Cleaner – Weekly - $ 75
You’ll go through the same process for each category, selecting the frequency then entering the amount.
As you add data to the spreadsheet, the month-by-month and cumulative cash surpluses update, as does the doughnut graph.
Scroll up to the Cash Surpluses Summary and Doughnut Graph to demonstrate this.
The doughnut graph is set to report annually, however we can use this slider to pinpoint any month of the year.
Scroll to the slider and select a month to demonstrate this.
Click to the Actual Performance sheet.
Each month, you’ll review your budget and enter your actual income and expenses.
The Budget column will automatically populate when data is entered into the Actual column for the month.
Compare your year to date actual with your budget to see if you’re on track.
If, after a few months, you feel your original budget isn’t realistic, make the necessary changes to the Personal Budget sheet for the remaining months.
Let’s now take a look at a completed Personal Budget.
Alt Tab to the Personal Budget Example PDF and scroll down the document to demonstrate what the finished budget looks like.
There’s little point in preparing a Personal Budget if you don’t monitor your progress.
Preparing the budget will be a valuable experience as you’ll learn where your money actually goes, however, this is only the first step.
The enduring value comes from seeing your spending habits improve and having open and comfortable discussions about where money goes and how you’re achieving your personal financial goals.
It’s key to track your spending on a monthly basis.
For some couples, discussions about spending and budgeting are normal.
For others, particularly where money behaviours differ, conversations about money are more tense.
In this case, some people may consider engaging an external facilitator to sit down with you to work out your budget and be a non-judgemental sounding board.
This can also provide independent accountability.
Do you want to add Personal Budgeting Coaching to your services, or do you want to work alongside an external organisation who specialises in this work?
Do you want to offer one Personal Budgeting Coaching session each year to your portfolio of coaching clients?
There are many options here, so don’t get stuck in one methodology.
Throughout the process, try to have some fun and bring some light to what can be a serious topic.
Celebrate your wins.
And yes, your celebration may involve spending money.
Thinking back to our thought of the day, don’t hide this from your children.
Let them see you set aside time to work out your budget.
Make this process normal and light-hearted where you can, not ominous and scary.
We know that focusing on personal spending can seem confrontational.
You may get worried that your spouse or accountant will judge your spending.
That’s really not the focus of setting a personal budget.
Your personal budget is just that - personal.
It’s yours alone.
Your budget simply reflects your decisions around how you spend your earnings and how much should be left over for debt reduction, savings and investments.
So, instead of dwelling on the roadblocks (time, fear, pride), remember to focus on the benefits:
Better control, focus and awareness
Improved money habits
Achieving your wealth creation goals
Focus on the benefits you seek to gain.
Then, take that first step of setting your annual Personal Budget.
Use our simple tool or choose an app that works for you.
Focus on the expenses you can (and want) to control.
And, get support from us if you need help or independent accountability.
- A review of the draft Annual Personal Budget
- The review plus facilitation of a Personal Budgeting Coaching session, or a coaching programme - be that monthly or quarterly
- The supply of the free Personal Budget Template.
This is the no-cost ‘Self help option’
- And of course, a one-hour complimentary meeting, focusing on the business (the CCR).
Wherever possible, include the price for each service so your clients have certainty as to what’s involved.
Ideally offer a low cost and a free option, along with your full service option.
Briefly explain what is involved in each of the options and the benefits to the client if you support them in this way.
Ask your attendees if they have any questions.
These can be submitted via the chat panel and the moderator can ask them on behalf of attendees.
We recommend having a dummy question on hand for your moderator to ask in case people are slow to submit their questions.
Most people don’t want to be the first person to ask a question.
Having a question ready in advance means people relax and usually the questions then start to flow.
When no more questions are forthcoming, click through to the next slide.
Before we go I thought I’d share this quote with you … (read quote).
A personal budget is just that.
It’s you deciding where you want your money to go, so it’s you talking control.
That has to be a good thing.
We hope we’ve given you plenty of ideas to ponder and some clear next steps for you and your significant others.