Why I don’t have a household budget
We’re often lectured on the wisdom of counting every single cent spent on our household budget, but I believe there is a way to become a successful investor without having to pull out your pocket calculator every time you purchase a coffee.
The common wisdom
I’m on the board of the Property Investment Professionals of Australia and was recently at dinner with other board members in Sydney.
Around the table were some of this country’s smartest real estate people. They were casually shooting the breeze and sharing ideas.
Everyone was in good spirits and with a great feed and a few drinks under the belt, conversation inevitably turned to a common interest – property investment and our strategies for wealth building.
Not everyone had the same approach to finance and home administration. Why would they? We were from various backgrounds and at different stages of life. Professionally, some are operating huge teams of buyers’ agents helping clients invest in a broad spectrum of property types across all boarders, while others were more niche in their approach and keeping low-overheads with a small but welded on group of purchasers. Some had been working for decades and had built up their own financial base, while others were still getting established in both their business and personal lives.
While much of our shared wisdom’ was the same, there was one element of finance where I found myself in the minority. The discussion turned to how we manage our own home budgets and most said they maintained a reasonably strict household spreadsheet.
Here’s where I came clean and surprised a few of my compatriots.
…I don’t budget.
Big picture planning first
You’ve probably heard your older, wiser relatives utter the phrase ‘Watch the pennies, and the pounds will take care of themselves.’
Setting aside that we flipped into decimal currency over 50 years ago (which shows you how old this saying is) I agree that monitoring the nuances works for some. If you’re the sort who needs the discipline of corralling the smaller stuff so as to achieve the bigger goal then that’s fine.
That said, my approach is actually an inverse – I use the bigger picture to keep the nuances in line.
My whole philosophy on investing for the life you want revolves around what I call ‘checking your barometer’.
I believe before you begin investing, the very first item on your ‘must do’ sheet has to be writing down the things you consider the most important in life – and I mean the essentials beyond money and material gains.
For example, my barometer setting is dominated by time with my family – and that actually doesn’t require us to spend $20,000 a pop holidaying in the Maldives every six months.
By checking your barometer and defining your ‘happiness essentials’, you can build your investment and lifetime strategy for the future.
Next up, most investors do need to be right across their home finances, but rather than concentrating on the budget alone, I recommend tackling your dollars under the guidance of an experienced financial adviser and/or mortgage broker who specialises in the real estate space. They can lead you through what’s needed for your investment plan – particular in terms of borrowing to build the portfolio.
At this stage, I actually do recommend spending a period (perhaps three months) monitoring your household’s incomes and expenses, to get a feel for how your cash flow moves. This gives you an education on what spending you can flex to help achieve your barometer’s goals.
Finally – build your investment strategy around that end game and follow the path (with constant revision and room to pivot when needed of course).
Dump the budget
Here’s the cool thing I’ve discovered by ensuring my life goals and strategy are set early and dominate my decision making.
If you establish the flow path of barometer goals, financial strategy with professional advice and working knowledge of household’s income, then your approach to how and why you spend money becomes ingrained.
I no longer need to track my budget with surgical precision. How and where I spend money to fulfil my family’s wishes is now second nature. I’ve become holistically better at money management through achieving a necessary income, keeping an eye on my goals, rechecking my personal barometer and making informed choices about where my dollars are used.
I’m uncomfortable with counting the cents because I don’t want to deny those small joys of life as they come around. Why live with the guilt?
Instead, stay strict about your goals and values. You’ll naturally divert money away from unnecessary spends in order to enjoy things you love most. If you and the kids would like to have a great day at Luna Park followed by star gazing at the Sydney Observatory, then do it without compromise. These memories last a lifetime. And if you keep your barometer goals in mind, you will find the funds without blowing the budget.
My mental spreadsheet may not be precise but I have never been caught short and I have built an emotional bank of experiences that didn’t involve me counting how many cappuccinos I was having throughout the day.
Living under the stressful financial shadows of a life dominated by a household budget is not for me – and it doesn’t need to be for you either.
Happy hunting.