What do dieticians and financial planners have in common?

As some of you know, prior to working in finance, I spent a considerable period of time in the military. At one of the bases I worked at in Sydney there was a mobile coffee van that would come around each morning visiting each of the units on the base. I have a clear recollection of one morning coming out of the base medical centre after seeing the physio and lining up to buy my morning caffeine fix. Directly in front of me in the queue was a slim, well-dressed woman in her mid-thirties. The owner of the coffee van (I can’t remember his name but let’s call him Karl) was a really chatty guy who would spend several minutes talking with each customer as he made their coffee (I often thought he would make a lot more money if he spent more time making coffee and less time talking!). As we approached the front of the line Karl struck up a conversation with the lady in front of me asking her what she did for a living and what brought her onto base. She answered that she was a dietician who came in one day per week to consult at the health centre. After hearing this, Karl, who was a larger middle aged gentleman jokingly, asked “Oh you’re a dietician! Can you do anything to help me out?” Her response, after carefully looking him up and down, was delivered with a straight face and in deadpan voice “Do more, eat less! It’s that simple” An uncomfortable silence followed this statement after which Karl, laughing, brushed it aside and resumed chatting on another topic.

This incident has stuck with me for two reasons. Firstly it was hilarious to witness. I was literally choking back laughter at the time. Secondly however, I was struck by how similar financial planning and dietetics is. If the mantra of a dietician is “Do more, eat less” then the mantra of every financial planner should be “earn more, spend less” or perhaps more accurately “spend less than you earn!!!” It really is that simple. Budgeting is the cornerstone of any and every financial plan. A financial planner can have the most elaborate strategies in the world, full of complex loans and superannuation salary sacrifices, but if the client is not able to stick to a budget, then the plan will fail. Budgeting really is that fundamental. So this week we are going to cover a couple of very simple points that will assist with balancing your personal budget. They are meant as tips only and it’s unlikely that all of them will work for you, but hopefully you’ll find something below that you’ll find useful.

1. Have a budget

It might seem like common sense but if you really want to get on top of your finances you need to have a written budget. This involves sitting down and working out what you spend and where you spend it. Without this information it is impossible to make informed decisions about where you might be able to save money.

2. Be realistic in your budget

It’s important that you are realistic in where you spend your money and how much you spend. If you know that you spend $100 dollars a week on coffee then put down 100 dollars a week. Don’t put down what you would like to spend, but what you actually do spend. It’s very easy to underestimate what you spend, particularly when it comes to regular expenses like petrol or groceries. If you honestly don’t know then try keeping track of your expenses for a couple of weeks before you start.

3. Be prepared to make some sacrifices

This one is important. If you have never done this before you are probably going to find that you are spending pretty much everything you earn, if not a little more. If you want to start saving money you’re going to have to make some changes somewhere. This doesn’t mean that you have to make drastic changes to your lifestyle, but you do have to trim some expenses somewhere. It’s equally as important that you be realistic here as well. If you spend 100 dollars a week on coffee, then aiming to slash your coffee bills to $20 a week is probably unrealistic. If you genuinely want to give up coffee then maybe it’s a solution but otherwise you are just setting yourself up for failure. Maybe cutting back from 4 cups a day to 3 might be more realistic. The most important thing is that you find somewhere to make some savings.

4. Pay yourself

This is probably the most important thing of all the points I will go through today and it ties in somewhat with the previous point. You have to allocate some money to yourself each week. How much you can afford is dependent on your circumstances, but not allowing yourself enough money to live is the single biggest reason that I see for most budgets failing. Typically someone will complain that they can’t stick to their budget but when I review it, all their income is tied up paying bills and saving for the future with nothing allocated to spend today. You need to have an allowance in there to go out for dinner, buy a CD or a book, or have a beer at the pub. If you don’t allocate anything for this, your budget will fail. I guarantee it.

5. Don’t be scared to carry cash

This may sound a little strange coming from someone who predominantly posts about digital currencies, but this is a little tip I use to avoid overspending. Once you have figured out how much you are going to spend on yourself each week or fortnight, go to the bank and draw that amount out in cash. The rule is you’re not allowed to draw any more out until next payday. You then have a visual reminder of how much money you have left every time you open your wallet or purse, and once it runs out, it’s gone. If for whatever reason you don’t spend everything then you have a little more left more for next week.

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