“Use a budget planner/spreadsheet” appears to be one of the go-to recommendations in articles about how to budget, including on ASIC’s Money Smart website.
The trouble with that advice is that most free budget planners have a big flaw, which will lead to you still blowing your budget.
The flaw in most category-based budgeting spreadsheets is that they are too focussed on the present and don’t prompt you to set aside money for predictable expenses that are two or more years away.
Automated budgeting apps that use your last three or twelve months of spending as a base share this same flaw.
So, if you just use one of the many free budget planner spreadsheets you probably won’t make it beyond living year-to-year.
Plan past one year
To stick to a budget you need a budget planner that looks over the horizon.
I designed the following cash flow planning model to help me and my coaching clients in seeing over the horizon:
Create your budget planner around those six categories and you will have a more accurate definition of what is truly affordable.
Over the horizon
- Infrequent expenses: occur at least once per year but less frequently than every pay cycle.
- Major, ad-hoc essentials: occur every few years and which we typically consider essential to maintaining our lifestyle. Will also include predictable life events and transitions.
- Financial independence: the point at which we can choose to not work for money. For some people, this coincides with ‘retirement’.
Refer to this article for examples of expenses that fit into the top three categories.
For help in building a better budget planner contact me.