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If you want to start making some real changes in your financial life and GET FINANCIALLY FIT then ask yourself one question…What is stopping me doing this today?
As promised, here’s the next instalment in my guide to achieving Financial Health. If you haven’t done so already, I highly recommend reading the previous 2 steps, before you continue with this article.
Improving Your Financial Health – Step 1
Improving Your Financial Health – Step 2
In “Step 1″ I mentioned a number of phrases that encapsulate what “Financial Health” or “Freedom” meant to me, I have included them below.
In this post, we are looking at the 3rd phrase, To Have Choice – (where we spend our money)
Grasping this idea, is one of the most single most freeing things you can do for yourself and your financial health situation. Take your “choice” back when it comes to finances & spending.
I have personally found it invaluable and see the amazing effect it has on others, as they get to grips with the concept and implement it over time. The truth is, you can have most anything you want, but consciously knowing what you REALLY want is key. The choices you then make come from a more balanced place.
Let’s face it, it is rare, unless you are in the top 1-5% financially, that you can have everything! Having to make choices is inevitable, what I want to be sure of is that we FEEL we really have a choice. That’s the freedom side. Having choice is aligned very closely to peoples idea of happiness, for many it’s seen as rite! Often, particularly with financial decisions, we feel bound to take a particular path. We feel there is no choice!
Some things we want are pure fantasy right ? Some things are a necessity, I HAVE to have it/do it/spend it. NO! I want to share with you an example from my own life. One which shaped a number of decisions I’ve made since, and not just in my financial health planning.
I’ll talk about my “inner child” here. It’s a concept a number of people are familiar with, in this case it’s that little part of you that says “I want xxxxxx“. I’d always tried to quiet that voice, to shut it up or ignore it, saying, “you can’t have that!”, “don’t be ridiculous!”, “how can we afford that!” etc etc etc. What I found was that voice just got stronger, “I really want xxxxxx” or “I’ve just got to have xxxxxx“, and on and on, the cycle went. I would feel dissatisfied, I never had enough, life wasn’t “fair”. Any of this sound familiar ? The more I tried to push that voice down the more I would want to do whatever “it” was, and the more dissatisfied I became. I had to break the cycle.
When it happened for me, it was a revelation, and I’ve been grateful for it every since. The concept was introduced to me by my Guru, in the UK, about 8 or so years ago. I kept saying “I really want an Aston Martin DB9”, I had pictures of it on my computer wallpaper, I knew the stats, I was even upset when I heard they TRASHED 6 or so of them making the remake of the Bond film – Casino Royale. They could have given me just one of them! Although I had this dream, it didn’t make me happy, I didn’t believe I would really ever be able to get it. I DIDN’T HAVE THE CHOICE.
My guru challenged me to fully accept the desires my inner child had. To “work with it” to help it FULLY investigate the actuality of having an Aston Martin. I was uncomfortable with this approach at first, but I went with it. I truly looked into what it would take to have one. What would it cost, insurance, purchase, lease costs, fuel, maintenance etc. I got quite excited, I was taking this seriously and you know, it turned out I COULD have an Aston Martin. It did come with some choices. However, even before making any decisions, I noticed something…
The more of a possibility it became, the less strongly I felt about getting one. To this day, I still like the idea of owning the prestigious Aston, but I am totally at peace with whether I have one, or not. In fact, I would go as far as to say I rarely think about getting one.
Now I had a choice… I could actively choose one thing over another. Once I was fully aware of all the facts, the need diminished, I could make a decision I would be at peace with.
The other thing that happened at the time, was I realized I no longer resented the things I felt were holding me back. I was no longer trapped by the life I had, by the restrictions I had felt were placed on me. It became clear, although I could have had the car, I would have to sell the house & live in the car. The house was our family home, I love my family, therefore (and this is important) as my desire had subsided, I could fully understand and enjoy the life I already had. No resentment, with full ownership for the choices I made.
I have reminded myself about this example many times in my life, and eventually it becomes an ingrained attitude. Your car is off the road, you feel like you have no choice but to spend all this money to get it fixed. Do you feel angry? “NOW I have to spend $$$$ getting this car fixed.” Truth is you don’t. You can not get the car fixed! You can walk, take public transport, ask friends for a ride. But you want the convenience of driving yourself… so now you WANT to get the car fixed. There is a huge difference, a difference in how you feel.
The multi pot budgeting approach, then helps further with this concept. You put money away for things you need/want and are a priority for you. Then when they happen, you have ALREADY made the choice to spend the money, after all, you saved specifically for this situation. Even less stress.
This article follows on from some questions that arose out of my article on Multi-Pot Budgeting, and what to do when something turns up that I DON’T have a budget category for ?
Today, I’m going to share what has worked best for me. This approach has single handedly given me the greatest financial stress relief. It’s enabled me to move from feeling
like this…
to this… 
Simply put, create a separate budget category just for this type of situation. In our family we’ve affectionately dubbed it the “Oh Sh!t” pot. You are planning for when you don’t have a plan 🙂 sneaky huh! Makes sense right ?
This new forecasting pot follows the same rules as ANY other budget pot, set the goal, putting money in each month until you reach your goal amount, track deposits/spending for the pot.
IMPORTANT. I do not class the “Oh Sh!t” pot as savings of any kind. It is a specific pot, with a specific purpose. Any savings for any other purpose should have its own category.
To start, I recommend guesstimating the kind of amount that could hit you out of the blue within a 12 month period, You can always increase it year on year as you get used to the approach…. for me in the 1st year this was $500. I’ve increased it over several years to now stand at $2000. It should be a figure you are comfortable will cover a few unknowns. The bigger the goal amount the greater the peace of mind.
The power to budgeting and forecasting, as always, is in the execution of the approach. What you do when a situation comes up or in this case AFTER we’ve settled the bill/situation. The key is to learn from each circumstance that presents itself and take action based upon what we have learned. Here’s my recommended approach.
At the end of the year
The buffer the “Oh Sh!t” pot provides, means you are far less likely to have to dip into some of your less critical pots to pay unexpected bills. Because of this, the pot gives me one of the greatest stress buffers. I know that if I get a unexpected bill, or problem occurs, I can handle some or all of it without affecting any of my other plans/pots.
Thanks for reading in, I’m really looking forward to hearing your comments and experiences on how you have implemented this approach.
As promised, here’s the next instalment in my guide to achieving Financial Health. If you haven’t done so already, I highly recommend reading Improving Your Financial Health – Step 1 before you continue with this article.
In “Step 1” mentioned a number of phrases that encapsulate what “Financial Health” or “Freedom” meant to me, I have included them below.
In this post, we are looking at the 2nd phrase, The ability to be open and honest – (with my family).
Just to be clear, I’m not talking about suddenly going from keeping a closed book on your finances to proudly standing on top of a podium in your busiest mall, announcing to the world your latest financial health check report. That’s a little too open, even for me. That said, I gave the subtext in the phrase “The ability to be open and honest” as “with my family“, which is true for me, but there is more to it than that.
We’ve already covered being honest with yourself , in the first article (link is at the top of this post), I talked about finding out the reality of your current financial health, as we covered, it’s not an easy step.
I think the simplest answer is ideally anyone who has influence over the spending of, or allocating of a budget category. For example, in the “full awareness” step, if you are jointly responsible for the household budget (ie, flatmate, spouse or significant over) then it’s pretty much everything. I wholeheartedly advocate a completely open financial book for you and your significant other.
If you share any kind of dwelling, and some of the bills/budget with your cohabitants, then it’s openness about all of those specific areas which you share or take joint responsibility for.
Kids is a little trickier, you need to choose the right time to introduce financial planning help, but once you do, again, learn to open up with them about any budget areas they can have an influence in. Also to understand the full picture of your financial position, it can help them understand what they can do to help or get involved.
For example, when we brought together our families, we sat down with all of our teenage children in one of our family meetings (another useful topic in a parenting section we may start to include), we discussed ways in which as a family we can reduce our spend. We were honest about our financial health situation and what issues we faced, from our perspective. Then asked the kids what their perspective was, what issues they saw, and what goals they wanted.
We looked at categories such as Groceries, TV/Internet/Phone, Cell Phones, Electric/Water etc, anything that we all had use of or influence over. We made decisions as a family, that EVERYONE could understand and get behind. We reduced our cable TV monthly costs, monthly grocery budget, increased awareness regarding electricity usage (which had both a financial and importantly environmental impact). Actually resulted in over $400 per month saving on our monthly outgoings.
Whats so important here, is that the conversations around these topics, were not only carried out with openness and honesty, they were also inclusive.
Being open to a financial analysis can reduce your financial stress. The old adage, A problem shared is a problem halved, rings true here, but its much more than that. Being open ensures your own honesty, it enables others to understand and get on board with any changes that are required to achieve our goals. It ensures accountability, once you have shared your goals and commitments with someone else, you are much more likely to stick to it and make it happen. Essentially you are putting your positive intent out there, here’s my current situation and here’s what I want to do differently.
I mentioned on Facebook, that I would put together a post on my Multi-pot Budgeting approach, so here it is.
This approach is one of the cornerstones of the budgeting system I have put in place for myself, my family and others over the last 7-8 years. It requires a some thought, some discipline and is how I ensure I have money for when non-monthly bills hit.
Budgeting is pretty standard and straight forward right ? It’s a well known approach.
I like to split budgeting into 2 different types.
The first budget type, is the standard monthly “living expenses”, stuff that you KNOW you will spend every month. Gas, Groceries, Utility Bills, Snacks, Drinks, Eating out etc. This takes up a large chunk of most incomes.
The second budget type, my “budget pots” are the items you need to budget for on a 2 to 12 month or longer basis. Categories that don’t come up each month. Some will have known dates/intervals, others will occur randomly depending on other factors, but you know they will happen. For example, car maintenance, household repairs/maintenance, education etc.
The latter, is the area that you can more easily implement the multi-pot approach. It’s the budget type that I will focus on here for my examples. It can be applied to “living expenses” but not as easily.
We’ll use an example to take us through the key principles. We’ll just use 3 budget categories for illustration…
I will also use easy numbers for the budget, so the actual values are unlikely to be realistic for your budgetary needs.
We’ll begin by looking at each category, how much we need for a year, and how much we need to put into the pots each month to achieve that goal.
For our purposes, lets say that we have an account that has a Zero balance to begin with.
On month 1, we deposit our monthly budget amount of $225.00, the same on month 2, 3 etc
That money builds up, and after month 3 we have a total in our account of $675 and it keeps going up (provided we don’t need to spend it).
My big focus on budgeting is reducing stress, for better health. Having money allocated, knowing what its for is all part of reducing that stress, as is how to spend it and the mentality around doing that.
What happens when you need to spend money on one of the categories… back to our example.
We get to month 2 (we have $450 in our account), and we have a leak in the bathroom. Plumbers are expensive, but it’s got to be fixed.
Now we have paid the plumber, lets take a look at our budget “sheet”…
In the table above, our household maintenance, shows as $150 over budget. Overall the total of our budget pots is still $150 to the positive. For many people this image is where we feel we have failed, we are over budget, even in just one pot, often it makes us feel like giving up. But not for me, not when you change your thinking.
If we look at the overall Annual Budget in the image below.
The annual budget for Household spend showing $600 still available. When we are looking at our budget “pots”, we need to consider what we have available in our account now, and, this is IMPORTANT, our annual budget.
There is the issue that if everything hits at once, you may not have enough in the budget pot to cover off the immediate bill, but once you have been running the system for around 6 months, it will start to really come into its own.
I want to fast forward 6 months, and add some expenses to the pot so you can see the overall effect.
8 Months in and the budget pot is performing as planned (no surprise for an example right), we have paid the expenses that we have needed and have some left over. We see a scary moment in month 4, where our budget pot was wiped out, and that can be stressful. Although I have a secret weapon for that kind of situation, but that’s the subject of another blog post to come.
You can see that pots effectively “borrow” from the overall budget if they need to, as its unlikely that all your budget pots will have a major expense at the same time. The more budget pots you have, and the larger the amount you save each month, the less the chance of you getting to the month 4 situation.
There are times, as is shown in month four, where we had a spend of $600 in one month, which wiped out the budget account. Ultimately the overall budget WAS able to cope. In his post about our programs (link to Joe’s post) and his take on them, as my son says his experience when starting up the budget pots was pretty difficult. For the 1st 3 months, every time Joe put some money into his account, he would have something crop up that would wipe it out. He does say that at least he could pay for the expenses he had. Wa are 12 months in, and Joe has a VERY healthy budget account, that can now afford almost anything that could hit him. He’s 18 and has an exceptional financial start.
Some notes on the example, its much more simplified that the full budget approach I have in place, but the principle is the same.
Just for reference, we now have built up to around 60 “budget pots”, this gives incredible flexibility, but starting with around 10-15 is a good beginning, you can add as you have more money available for allocating.
I can’t wait to hear your thoughts/comments on this approach, and would be happy to answer any questions you have on it and other areas, so please drop me a comment in the section below
What’s up guys! My name is Joe Burton, I am one of Mark and Margie’s kids, I am the generation of Z! They asked me to write a little something about how their lifestyle of being healthy and financially fit has affected me, so, here is my 100% honest opinion on it….
Firstly, the nutritional side of things; I am an extremely active young man, I am often out of the house almost 12 hours a day, maybe stopping by for 30 minutes in between school, work, and dance rehearsals (yes I am a dancer). My favorite part about the healthy eating is how quick and easy it can actually be. I could quite easily throw some breaded chicken and fries in the oven for 20 minutes for my dinner, but there always seems to be a much healthier option to be made in just the same amount of time. It really is a choice. My biggest struggle has always been not having enough time in the day to cook myself a good meal, but it’s amazing how much better I feel, during and after when I do manage to get some honest good food inside of me!
Now for the money side of things! My dad (Mark) introduced me to his “Budget sheet” 2 years ago, when I was 17. I liked the idea of knowing where my money was going and being in control of it all so I gave it a try. For the first few months it was honestly a nightmare because, as is typical every single month something came up, from having to buy a new phone, to repairs on my car. There was always some sort of expenditure that threw me off. However, I still believe if I didn’t have the budget sheet I would have been worse off.
Right now, I could have almost anything go wrong and I would be able to handle it financially. This is because little by little you build up your “safety nets” for all of the things that you may have to pay for. The budget sheet has given me so much freedom with my money, something my Dad likes to call GUILT FREE SPENDING, and it is exactly that, being able to spend money without the thought of ‘can I afford this ?’.
I have learned a lot from my old man and budgeting my money has also given me the additional side effects of discipline and maturity. SO… thank you dad, and to everyone else, ENJOY THE FREEDOM OF BUDGETING!
– Joe Burton
