My Money Matters & Budgeting
How economical are you with water?
I guess, probably not so special. After you have done your business, you push without hesitation, the toilet flush. For washing up, you simply let the sink run full – or even wash off under the tap. You go showering as often and as long as you want. And do you have any idea how much water your washing machine and dishwasher consume?
Granted, that’s not a big problem. Water is almost abundant in our climes. Without any effort, it comes in infinite quantities just like that out of the wall and is also dirt cheap. Whether you push the toilet again or stay in the shower for five minutes longer, that makes little difference at the end of the day. Strictly controlling or even rationing your water consumption would be unnecessary.
But how would things be if you were to live in a small village in the Sahara rather than in paradisiacal Europe? Infinite water from the wall? Nice wishful dream!
Your only chance to get to the water is to get up early every morning and walk for three quarters of an hour to the nearest well. Since the well is unfortunately not the richest, you have to pump water there for eight hours until your two brought along plastic canisters are reasonably filled. Then you drag your income all the way home, where you arrive exhausted towards evening.
Would you still be so carefree with your water now?
I would guess: Not in life! Such a limited resource that you have to work hard to extract will probably be as efficient as possible. From the small amount of water that you carry home every day, you want to shower as long as possible, wash as many dishes as possible and drink as much as possible.
Any bet, you would pay close attention to how much water you consume? When showering, you turn the cock only half way and even set it to soap the water off completely. For washing you can only a little water in the sink. And that not only rinses off a single plate, but also the dishes of a whole day – until the water is dirty. The toilet flush you operate only briefly – and used to rinse the dirty water from washing dishes. Finally, the laboriously dragged water should not be half empty after you were twice on the toilet.
Your money is nothing but water in the Sahara
The money you earn every day in your work is basically the same as the water laboriously brought from the well: an important but limited resource that you have to pump for hours every day.
So it’s perfectly logical that you use your money as efficiently as you would with water in the Sahara. You have exactly under control, where every single penny flows. All your expenses are optimized so that every euro brings you the maximum benefit and the greatest possible satisfaction. Every purchase is in perfect harmony with your goals and values. Nothing is wasted …
Wait a minute … what? Do you want to tell me something …
You really have no idea where all your money is going exactly?
At the beginning of the month, money comes into your account. At the end of the month a large part of it disappeared again. But what exactly happens in the meantime?
Where does all my money go?
Just as water is a means of showering, washing and quenching, money is also a means to an end. Money is there to make me happy and live according to my personal goals and values . While I want to drink, shower and wash off my limited water supply as long as possible, I want to tickle out of my limited money as much satisfaction as possible and know my goals and values as well as possible fulfilled.
My money is like a car that uses as little gasoline per kilometer as possible. The lower my individual money consumption , the less money I need for a happy life and can continue to “drive” with the same amount of money.
And what exactly do I mean by personal goals and values? These are the overriding things that are important to you in life. Your wishes, your life content, your mission in a sense . For example, my personal goals and values might look like this:
I would like…
- carefree and safe living
- be free and spontaneous and have my own time
- to be healthy and physically fit
- Maintain good relationships with other people
- inspire others and make the world a little better
Maybe your goals and values look so similar to mine. But they can also be very different or even change in the course of life. But the key question remains the same: are your expenses consistent with your goals and values?
Without knowing you, I should always be able to look at your expenses and say: Jap, I can see exactly what’s important to you in life.
However, when the money comes on our account at the beginning of the month and we just spend it, it is very unlikely that we will really use it to our satisfaction and goals and values. Just as we unthinkingly press the toilet flush and are unaware of how much valuable water we consume, we barely have an intuitive understanding of exactly where our money goes.
First, we need to raise awareness of how much money will flow into our lives and how much will flow out and what we spend it on. And for that we need a book.
The book that makes you rich
It is not without reason that all sensible financial advisers in the world come to the same conclusion. The very first step in raising awareness of your finances is to track and write down your income and expenses.
In English, this method is called very well-sounding Expense Tracking. In German it has a more conservative name: the budget book. That sounds pretty boring at first – like a dusty relic from Grandma’s drawer. In fact, the budget book is the book that will make you rich .
In your budget book you write down each of your earnings and each of your expenses to the cent. This usually happens sorted by categories such as rent, food , clothing or insurance.
You do not even have to worry about savings. You also do not have to have a guilty conscience or be annoyed about any expense.
For the time being, tracking is all about writing down all revenue and expenditure without evaluating it. The important thing is that you do not forget to spend or take anything and really get a grip on everything.
After a few months, a clear picture of where your money actually flows is slowly emerging. What are your biggest expenses? Which “additional costs” does your job entail? What do you spend on restaurant visits, clothing or hobbies? Are there any smaller interim purchases that add up to larger amounts over time?
Then you can think about the next step: Do your expenses generate the maximum possible satisfaction? Which of your expenses correspond to your life goals and values (and which not)? Where can you use your money more efficiently?
Your budget book will help you reduce your money consumption. You quickly realize potential savings and can check the effect of your austerity measures. You recognize at an early stage, when any expenditure increases creeping and can question this lifestyle inflation and take countermeasures .
Your budget book gives you control, direct feedback and motivation in saving. It’s like a journal for your finances.
If you are on the path to financial independence, then with your budget book you can estimate how much passive income you have to generate to be financially free.
Where perhaps at the end of the money still was formerly month left, you find yourself suddenly in this way in the realm of savings rates again . You watch your fortune grow. Or you realize: Why am I working so much? I do not need my entire income for a happy life, but have not used it efficiently enough. Your budget book is the first step into this world of wealth.
If you tend to spend all your money the same way, you can also create a budget based on your budget book . For each category of spending, you set an amount that you want to spend the following month at most. If your budget for restaurant visits is exhausted, you can not go out for dinner until the next month. The budget book gives you a good indication of how much your budgets should be and allows you to control their compliance.
Personally, however, I do not set any budgets, but simply spend my money freely, as I see fit. In doing so, I just keep track of my expenses in my budget book.
And that’s how I keep my household book
Of course, in the 21st century, a household book does not have to be a real book anymore. How exactly you manage your budget book is entirely up to you. As a real (paper) book, as a poster on the wall, via Excel spreadsheet or smartphone app. Just do what you like best.
Three and a half years ago, in November 2013, I started to track my income and expenses. Since then, I keep a book on every euro that goes in and out of my life. This has now created a very interesting database and I can draw some conclusions.
The most important thing is to get the big fish under control. The expenses for housing , for transport to work, for cars and insurance. Then it is important to establish the right habits in everyday life: to buy unprocessed food and prepare it yourself. To look for cheap leisure activities . Do smaller jobs instead of outsourcing. And spending on furniture, clothing or electronics will be negligible anyway as a convinced non-buyer .
And that was it. Whether I go to an expensive pub or enjoy a luxury weekend in the wellness hotel , that’s completely lost in the balance sheet at the end of the year – it’s the habit of making the roast fat.
Of course, from time to time sometimes higher unexpected expenses occur. Over a period of one or two years, however, it turns out that these unexpected expenses balance each other out on average – at an average value that in turn can be estimated quite well for the future. That’s how my idea of cost exposure came into being: the less susceptible your lifestyle is to high, unexpected spending, the lower it will be on average.
How about you – do you treat your money like water in the Sahara? Or do you press more or less without hesitation the (financial) toilet flush? Did you reduce your money consumption and generate the maximum satisfaction with your income?
Do you also run a budget book and track your income and expenses? I am pleased about your comment!