It might seem strange to see a post about money on a productivity blog, right? Well, I believe the two are connected. By becoming more productive, your are in a position to better your finances. And by having your finances under control, you can be more productive elsewhere. When you have a mountain of bills to pay, credit card debt piling up, and a home loan, or rent, to worry about the stress quickly piles up. And then theres all the “other” expenses to consider such as insurances, activities and entertainment, education, and the list goes on… and on.
If you’re like me, whenever you start to think about all the expenses you have in your life you start to curl up into a ball and rock back and forth on the ground. The immense weight and responsibility of being a “grown up” is crushing, but there is absolutely no escape. Well, almost.
Wouldn’t it be great if you didn’t have to worry about all those bills and expenses? Wouldn’t it be amazing if you knew, if absolute certainty that they were all taken care of? Wouldn’t you feel lighter, happier and more confident and be able to take on new challenges with gusto? You can, and here’s how!
The secret lies within four simple principles, the first of which is outlined here.
Give Every Dollar a Job
When you’re paid, the trick is to allocate every single dollar you have to a specific job. This is the basis of most budgeting techniques. Let’s say you’re paid $1000 (for the sake of example). You know that you have a regular car loan repayment of $460 each month, so that’s accounted for. You need groceries, so that might be $210. Then there’s gas ($80), utilities ($130), and eating out ($20). That leaves you with $100, which you allocate to savings, or the “buffer”.
The secret is to look at where you’ve allocated your money. So, when your friend asks you to come out for dinner, instead of looking at your bank balance, seeing the $1000 there and thinking “woohoo, alright, let’s go!” you look at the $20 allocated to eating out and perhaps suggest your friend join you for a pizza instead.
Then when the bills come due you can rest easy knowing that you have enough money allocated to each item to pay each one as they come.
The $100 that gets allocated to the buffer is your safety net. If the next month you are again paid $1000, you actually have $1100 to budget with (since your $100 is carried forward from the previous month).
Many infrequent expenses are high cost, such as your car insurance renewal. I’m guessing you’re blissfully unaware of this expense until the month it is due, then you look at your bank balance, then back to the bill and you have no idea how you’re going to be able to afford it! The key is to plan ahead. You know that your car insurance is due the same time every year and you should also have a fairly good idea of how much it’s going to be. Then you should create a new area to allocate some portion of your income to that bill each month. Since it’s not a monthly expense, the total amount allocated to that expense will continue to grow, to the point where when you do receive your car insurance renewal, you can look at the allocated money and be at ease knowing that you have enough money there to easily cover the cost.
Giving ever dollar a job is probably the most important part of easing your financial stress and getting back in control.
Does it Work?
This post is largely based on my own personal experience. I was forever worrying about how to get bills paid because when my wife and I wanted to do something fun we’d look at the bank balance. Sure, we knew “roughly” what large bills we had that month, but those smaller ones always snuck under our radar. So we’d look at the bank balance and decide that we could afford to go out, to get that new TV, to go on that holiday. Only to really stress and struggle as those “other” bills came in. By having defined “buckets” that our money can be allocated to, we can much more accurately forecast what we can and cannot spend and where. This has become immensely easier since we started using an application called “You Need A Budget“. It’s a wacky name, but it’s very, very true. At the time, we had no budgeting method in place. Neither of us have backgrounds in finance and personal money management isn’t something that is taught in schools (when it absolutely should be!). So since we’ve been using You Need A Budget, or YNAB, we can see where our money is going; we can control and forecast where we need to budget and what big expenses are down the line. And we can better live within our means.
If all these problems sound familiar, I highly recommend you take a look at You Need A Budget, because it’s 100% true – you DO need a budget.