When it comes to making a household budget I find one of the trickiest things to do is change one’s perspective to come at the situation from a different angle. Often times altering the way we look at a problem reveals new and improved solutions.
In terms of budgeting, one of the best shifts in perspective I gained was adjusting the way I looked at my expenses and income. Most people, I find, look at all the things they want and need and then try to work out how they can make enough money to cover all of those expenses. A lot of people get into the habit of looking at their budget and thinking, “I need to cover $1,500 in rent, $500 for the car, $600 for groceries, $400 to eat out and socialize, $200 for student loans, $25 for streaming services, $200 for kids’ sports, etc…’ Then they try to work out how much they need to work, borrow, cut from other parts of their budget, or hustle in side gigs in order to make the budget work.
This is, in a lot of cases, an obvious and simple way to approach budgeting. But what if we turn the approach around and come at it from the other direction? What if we started with the idea: “I make X number of dollars, now what can I buy with that?”
In the past friends have sometimes remarked, especially when I was young and not making much money, that I seemed to find it easy to get by on a limited budget. The reason for this was largely due to the fact I started working on my budget based on the amount of money I had coming in and figured out what I could get with this level of income. I was making my lifestyle conform to my budget. I wasn’t try to stretch my budget to conform to my lifestyle.
I would begin by looking at my paycheque, figuring out how much money I’d earn in a month, and then start figuring out how to get my most basic needs met. If I was making less than $1,000 per month, obviously I wasn’t going to be able to afford an $800/month apartment. I’d look for a place to live that was under $500. If I couldn’t find a solo apartment for that, I’d seek an apartment with a room mate, or a room to rent in a house. I’d take anything I could find that got my housing cost down under 50% of my income. When I’d go to the grocery store I’d figure out how much I had to spend that week and cut off my purchasing at that point, not buy what I wanted and then try to rebalance my budget later.
How this approach differed from some of my friends was highlighted when I was helping one look over their budget and one of their big expenses was a car along with its associated costs. The car itself was on a payment plan of around $350/month, insurance was around another $100, plus fuel was around $200. Even without anything breaking down or needing maintenance, the car was costing about $650 every month, around a third of their income after taxes. When I pointed out this was a major, ongoing cost that should be addressed my friend responded (reasonably): “But I need a car.”
They were right, in essence. Getting to their workplace required transportation and their location required transportation to get necessities like groceries. However, being required to get to places isn’t always the same as needing a new car. I know a few people who have purchased outright very inexpensive, used cars for less than what my friend was paying every six months for their vehicle. I knew others that moved closer to their workplaces or urban centres to allow them to walk and bicycle everywhere. This raised their rent a few hundred dollars, but reduced their travel costs by several hundred dollars.
The point is my friend was starting with the assumption they needed a new car and then worked backwards from that point to try to figure out how to make that work, which resulted in a very tight budget. My perspective is that I need to get to certain places and then I figure out how I can best do that, given my current budget. Maybe a used car is a good, affordable option. Or maybe moving closer to work is, or getting a bicycle, or living on a bus route.
The same goes for things like planning fun activities and vacations. Some people decide where they want to vacation and then try to figure out how to save enough money to make their dream vacation a reality. Which is all well and good if you strongly desire one specific destination. However, budgeting would be easier if they looked at how much money they were saving each month and then figured out what they could get for that much money by the time their vacation time started. The same logic applies to other key, expensive moments in life like weddings. I think people would feel less financial stress if they planned for the wedding they could afford rather than trying to figure out how they can afford the wedding they just planned. (Mine is not a romantic approach, but it is the approach which makes finances easier.)
Ultimately I feel a lot of budgeting stress is reduced if we start with the assumption we have X amount of income and then work out how to make that money work for us. It’s harder, in my opinion, to start with a list of things we want to buy and then squeeze them into our budget.
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