I worked through the next step in this evolving process today, and for all the work I’ve done one budgeting and trying to change my spending habits in the past, this one was relatively new. It’s something I’ve thought about a lot over time, but haven’t ever actually articulated on paper.
In the process of working out my budget, I really looked at my spending to identify exactly what things in life I need to spend money on, and what are the non-essentials of life. Like I said, this is something I’ve thought about a lot, but actually putting it on paper was enlightening.
I created three categories to allocate all my spending to – Essential, Helpful and Luxury. I then went through my bank statements and wrote down everything that I regularly spend money on, and allocated each item to one of these categories. I also noted the frequency of these payments (fortnightly, monthly, quarterly). The bulk of my income goes towards direct debit payments from my bank account, which I’ve set up to make paying it easier to bay bills on time (and keep track of them), so that was a straightforward process for me. I recorded any out-of the-ordinary payments (such as PayPal payments for items I’ve bought), and thought about the things I paid cash or use EFTPOS for (like petrol, food shopping, coffees, going out for lunch, prescriptions etc). Everything fit into one of the three categories and for me, the vast majority of my spending came under the ‘Essential’ category.
So here’s a bit of a rundown of each category –
‘Essentials’ covers everything I absolutely need to live, and everything I have to pay (e.g. loan repayments) – home loan; food; car running costs; school fees; utilities (electricity, water, council rates, phone); insurances; medical expenses; clothing (basic);home maintenance; loan repayments and minimum balances on credit cards. I also include giving/tithing in this category.
‘Helpful’ is for anything that makes life a bit easier, or even just pleasant, but isn’t essential to our living and if I’m completely honest with myself, I could go without. Things (for me) like health insurance, my mobile phone plan, adding essential oils to my collection and Spotify Premium (I actually didn’t have much to put into this category). Other things could include gardening services, cleaning services, newspaper delivery, gym memberships.
‘Luxury’ covers everything else – all the things we truly don’t need but simply like to have, and can absolutely live without. Eating out, pay-TV (cable), shopping (for anything – clothes, toys, craft supplies, at the hardware store, anything that isn’t essential to life), online courses/subscriptions, iTunes, going out for coffee or drinks, hair and beauty appointments, take-away meals, holidays, going to the movies or the theatre, gourmet food, home decorating – I could go on and on, but you get the picture.
This part of the process is where you start to see a clearer picture of your spending, especially where all those little things add up to A Big Thing. It’s also where, if we’re truly honest with ourselves, things start to get confronting and uncomfortable. If we are really, really honest, we would put a lot of our spending in the ‘Luxury’ category, because we know that we can live without them, we just don’t want to – and recognising that can be either enlightening or disappointing, depending on your perspective. I’m the first to admit that I don’t like giving up the things I want, however I’m choosing to embrace this part of the process, but more on that later.
Categorising your spending helps you to see where you can start making changes, what you can possibly cut out or limit to help you create your ideal financial life. It also shows you how often when we think ‘oh, it doesn’t cost that much’, $2 here, $5 there – it all adds up and could actually be taking a significant chunk out of your budget (as has been my experience).
This is where we work out where to spend what you earn, by prioritising every spending requirement (or desire) in life. For me, I will allocate my income first to the ‘Essential’ category, then ‘Helpful’ and finally ‘Luxury’, and I don’t think anyone would disagree that this is a sensible way to manage money. Whilst I have always done this for the most part (making sure the main essentials are paid), I have manipulated things to get what I want, at the expense of what I need to pay for, and this is where creating these categories and writing it all down in black and white will give me clear direction and keep me accountable.
This is an emotional process. Looking deeply into and analysing your spending opens your eyes to the ‘why’ of your spending – especially when you already know there’s a problem. Why did you buy another pair of jeans last week, when you already have 6 pairs in your wardrobe? Why are you buying a latte every day at a cost of $30 a week, when you know you really can’t afford it? Why are you spending money on things you know you truly don’t need before you pay the bills? Why is there ‘just never enough’, even when you’ve cut back everywhere you can (or at least you think you have)?
All these questions – and the ones you know you need to ask (and probably know the answers to) – bring to light the emotional side of managing money. I know what my answers are and until now, I’ve kept them in the dark, thinking I could keep the truth hidden even from myself, but now I’m bringing them into the light –
I feel entitled to have what I want, when I want it.
I don’t want to wait.
Getting what I want makes me feel good (for a short time, anyway).
Hooo boy, there it is.
(Insert uncomfortable shifting and red cheeks and a strong desire to hit delete right about now)
You know what? Looking at these answers, these words, I can see them for what they really are – total, utter self-indulgence, resulting in stress and worry and self-loathing after the fact.
My history has been to give up what I really want in the future for what I want now.
I give up being debt free because I really want a Fitbit now, which I justify by telling myself how it will help my wellness journey, and I can get it cheap second-hand from Gumtree.
I give up having any savings so I can ‘treat’ myself to breakfasts and lunches at my favourite cafe, telling myself I deserve the treat for all the work I do.
I sacrifice much-needed maintenance on my house so I can buy another online course that I’m convinced will be the catalyst for change in (xyz area) of my life this time.
Constant compromise of my future to satisfy my self-indulgence now.
Not. Very. Pretty.
But the truth often isn’t pretty. So often it is ugly, brutal, offensive and very, very confronting, and right now I am so, so grateful for that. And I am so grateful that I am not my behaviour. I am defined by my choices and I have the freedom to make different ones that will change not only my future, but my present, the reality I’m living right now. I get the chance to write a different story.
God is giving me the tools I need to make things different, to learn to be a good steward of what He entrusts to me. He gives me insight, wisdom and direction to choose the path to freedom – He gives this to all of us (and has been for a very long time) through His word, when He tells us that we can’t serve both God and money, we have to choose which one we will worship. Money is a tool, a provision given by God to use to live well, to live full, to live the life He intends for His glory. We are to use money to serve God, it is not a god we are to serve.
So this week, make your lists. If you don’t have a clear record of where all your money goes, I encourage you to keep a spending diary, for at least 2 weeks, recording every cent that gets spent. Then gather up all the information you’ve recorded from your bank statements, receipts, spending diary, whatever you have, and find some time to settle with what’s before you. Really look at your spending with honest, open eyes, and honestly evaluate what needs to go in which category. We’ll come back next week to start putting together a budget, in the meantime take the time you need to walk through this process, lean into the hard parts, and know that I’m here praying for you as we travel this journey together.