S1E5: How to budget to make the most from what you earn (plus Damo & T rip apart each other’s bank statements)
70% of people don’t budget which means there’s an opportunity for you to be better than most. A budget helps you navigate from the financial stage you’re at now to the one you want to get to, whatever your goal is. We’re here to learn how to budget, but first of all, let’s find out what Damo and T are wasting their money on...
What you should remember from this episode
70% of people don’t budget.
You don’t just do a budget once and it’s done - it’s something you do periodically to keep yourself on track.
A lot of people’s issues with personal finance could be solved through regular budgeting.
People often avoid budgeting because they think they’re bad with money, so they don’t want to face up to it. But budgeting is often the solution to their problem of being bad with money.
A budget can be liberating, allowing you to spend on what you really value but sometimes can’t afford because you don’t budget.
Damo has several bank accounts but only one card he can spend on. Having budgeted for the month ahead, he pays himself weekly, which he can then spend on that one card - controlling his spending.
Damo would like you to know he’s the same height as T but I’m not sure he is either tbh.
Spending money on experiences generally makes you happier than spending on things.
There are loads of ways to budget. One of the most widely discussed is the 50/30/20 rule, which suggests spending 50% of your income on your needs, 30% on wants and 20% on savings. That’s unachievable for a lot of people, but gives you an idea directionally of what you might want to work towards over time.
Budgeting, in combination with building an emergency fund, is how you can build enough buffer to withstand the shocks that life throws up, like your car breaking down.
The general priority order of personal finance (it depends on your circumstances of course) is paying off lots of unsecured debt first, then building an emergency fund, then building savings and investments. Budgeting is worth doing because it can help with all of those things - it helps you achieve your financial goals quicker, moving from one stage to the next.
What you should do after this episode
Go through your last 3 months of bank statements to see where you’re spending. I’ll wager there will be some shocks in there.
Do a budget. You need to figure out what method works for you but here’s Damo’s crappy Google sheet (please make a copy). There are many different ways to budget but you basically need to get an understanding of your income and expenses. You can then make more conscious decisions on what and where you’re spending.
Consider eliminating spending that’s neither necessary, nor bringing you joy.
Consider separating your money, e.g. having different accounts for different purposes (Damo’s setup is excessive for most people though). For example, you might have a pot for an emergency fund, a pot for general spending and a pot for big ticket items like holidays. The point is to create structures that make sure your money is being saved for what you really value (after your basic needs). Saving should be seen as an essential though.
Consider paying yourself your ‘spending money’ on a weekly basis so you don’t burn through it before the month is over.
The key thing is to get better visibility of your money and putting in place structures which suit your goals, circumstances and personality.
