The Power of a Budget

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I don’t know why it’s taken me till the age of 44 to come up with a comprehensive and detailed idea of where I spend my hard-earned cash. It’s actually rather embarrassing to put down on paper. 

I mean, I was of the firm belief that in any given month I generally had a fairly good idea of where it’s spent, BUT (and please notice that’s a big BUT), the recent exercise I’ve performed laid all those thoughts to waste.

What prompted me to do it? Well it had become apparent to my lovely wife and I that over the last 18-24 months, we have been consistently spending a little more than we’ve been bringing in each month and in terms of conventional wisdom on how one should look after their finances, that’s a massive no-no. 

Thankfully the proceeds of a long held share portfolio we have has been enough to cover the small shortfall each month, but over the course of that 18-24 month period, drawing down on those funds has completely halted the growth of our Investment. See, we all should know that Investment 101 tells us that for our Investments to grow, the proceeds from those Investments (in the form of dividends and income), should be reinvested. In the words of the great Aleksandr Orlov, founder of Compare the Meerkat – “Simples”. 

I think a couple of the reasons I hadn’t done the exercise in the past were the following:

  • I hadn’t needed to. With the Investment nest-egg, the fact my expenditure exceeded my income hadn’t hurt me immediately. The fact my investment growth was stunted was a kind of delayed pain.
  • If I’m honest, I was happy with life and there was an element of anxiety that in checking my expenses, I might conclude that I needed to cut back on some and that might have made life less fun. How mature is that?
  • It was a mission. At one stage Nina spent hours trawling through our bank statements capturing and categorising everything neatly in a detailed spreadsheet only for the next bunch of expenses to come through. MISSION. 

So what changed? 

  • We needed to do it. I work in the Financial Services industry and it’s a deep-seated wish of mine that people investing on EasyEquities can create real future wealth for themselves and their families. I know it deeply in my bones that spending beyond your means is reckless and stupid behaviour. So time to stop that behaviour.
  • In answer to the question posed in 2 above. NOT VERY. One shouldn’t be anxious of the unknown but rather confront it head on. You don’t know what you don’t know and ignorance is no excuse. I think that a lot of people probably feel the way I did and ignore a potential issue until they very suddenly find themselves in real Financial trouble
  • Technology has stepped in to save the day. No more mission. It’s easy and dare I say it – FUN. 

So psychology, maturity and good personal finance behaviour aside (all very important), what’s the fun part, cause that’s the thing that just might entice the more stubborn or foolhardy into giving it a go and I’ll use any means necessary if I think it will help people follow the better course. 

Well it’s tech, and in this modern age of mobile phones, social media and immediate gratification, who doesn’t love the clever tech tools that we use daily. I absolutely love tech and there is a brilliant application called 22seven that Old Mutual purchased in 2013, that allows users to categorise all their income and expenditure in a very simple and intuitive desktop or mobile application. 

All you do is connect your bank/credit card accounts (even your EasyEquities account can be connected) to the app via a secure login and the app pulls in every single transaction conducted in those accounts. I know there are some out there that are uber anxious about security and fear that in typing their bank login details into an application that doesn’t belong to their bank they may lose everything. However, the only thing the app can do is pull through transactions. That’s all. And it is super secure. 

The app uses the same security measures as your bank. The information is encrypted so that it can’t be deciphered by any nasty criminals / fraudsters. But don’t take my word for it, you can read about how seriously they take their security here - https://www.22seven.com/how-it-works/security

So I connected a bank account my wife and I share, as well as a Discovery credit card that I use, and spent about 2-3 hours categorising all the transactions back to 1 January this year. Now 2-3 hours may seem like a long time, but it’s only because I did the exercise so thoroughly, raising questions about uncategorised expenses I didn’t recognise with my wife, an insurance broker and anyone else I needed to. 

The app is clever enough to do a lot of the initial legwork for you, as it categorises any items it recognises by the transaction description . For example, any expenditure at Pick ‘n pay and Woolworths are automatically categorised as Groceries. Now sometimes if you’ve bought clothes from Woolies (or even PnP these days), then you simply re-categorise them. You can also define the frequency of the expenditure on the app into 3 broad categories of ‘recurring expenses’ (like monthly subscriptions to Showmax, utility bills etc), ‘day-to-day’ items, or ‘exceptions’ and even split certain items into parts if for example R300 out of a total R500 spend at Woolies was for clothes with the remaining R200 on groceries. 

Very very clevva Trevor. 

And what did this monster exercise yield? Well immediately, on the first run-through, I made the following observations / realisations:

  • A R350 saving per year for an anti-spam service on an old website I no longer operate. Thankfully that annual charge came through while performing the exercise so I managed to cancel it. Had I missed it, that would have been a 3rd year in a row of completely unnecessary spend.
  • A R160 monthly saving for an Audible (the books you listen to) subscription we don’t really use.
  • A R700 once-off expenditure on an Adobe product for work that I had completely forgotten about for which I need to claim.

And just to reiterate – these were my first observations. Since that I’ve made many more. 

The whole exercise was incredibly illuminating to the extent that I’m confident that with a regular monthly run through and categorisation of transactions and a discussion with my wife, we’ll be able to not only arrest the overspend, but we’ll be able to save some money to invest. And that’s what we’re after. Investment 101 – remember. 

And I also feel much better for it. On reflection, that anxiety I mentioned earlier was just a load of BS. Life won’t be any less fun. If anything, I feel confident that in future I’ll be able to dispel some of the guilt I felt at times when spending money on something I may be felt I shouldn’t. There is definite power in knowing, even if discovering the truth might be a bit scary. Most often it’s not as bad as you think, and tackling it head on and making a few changes can save you a world of pain in the long run, and at worst possible Financial ruin. 

I’ve just touched on the very basics of the app. Besides the basics, there is all sorts of clever functionality like visualisations, nudges and budgeting tools that can give you even better insights into your money, what you’re doing with it and how you can make positive changes to make it work better for you and grow. And most impressively, you can carry all this info with you wherever you go, on your phone, in your pocket. 

So if like me you’ve been putting it off, don’t waste any more time. Get going. Today. One of the strongest factors in growing your future wealth is time (in the form of compound interest) and each day / month / year you waste, will doubtless put big delays in the achievement of your financial goals.

Check out - https://www.22seven.com/

 

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Justin Pearse
@ultrabloke