You should have a personal budget, right?

One of the most common recommendations for solid financial planning is to have a personal budget in place. It can help you immensely to allocate your resources where they are needed the most, to analyze your expenses and to stay on top of your finances at all times. So it’s not surprising to hear this advice frequently. Personally, I also follow a very strict personal budget which looks almost like my companies P&L statement.

However, just because something helps one person, doesn’t mean that it’s good for everyone. Some people might not have the time to work on a personal budget plan. Some might hate Excel (or Numbers for Mac users), and others might just feel annoyed about micro-managing their financial lives. If you are one of those people, don’t despair. A budget is helpful, but I wouldn’t say that you need it to succeed financially.

Hitting your savings/investment target

What you actually really (and only) need is not necessarily a budget, but simply to hit your savings and investment targets.

Following a budget is a great exercise to learn how to control your income and expenses, but you could also go for a simpler and less micro-managed way. You could simply fix a target of how much you want to see yourself having saved up or invested in a specific timeframe.

Let’s say you want to see yourself having 100.000 Euros invested over a course of 10 years. This means that you need to save and invest 10.000 Euros a year on average – no matter how.

This is where you can stop, or expand a little further, it’s up to you. As long as you can hit this self-imposed target and it helps you to get closer to your end-target, you will be doing just fine.

I like to break ambitious targets into smaller, more reachable goals. 10.000 Euros sounds like a lot, but divide it by 12 to set a monthly goal and you will be down to a little over 800 Euros. Break it even further down by days and you will come down to just a little more than 27 Euros a day.

Now HOW you get those 27 Euros a day is completely up to you. Whether you save it on groceries or hot coffees, take it from your salary or take up a side-gig to increase your cash flow and to send the money into your investment account. It’s your choice. If you have some other passive income in place, like an annual bonus payment from your company, incoming dividends or interest from existing investments, or whatever will reduce your need for commitment, it counts.

This is another way to manage your money and it has some allure because it’s simple, less time consuming and it might not give you the feeling of restricting yourself too much and to still enjoy life (almost) to it’s fullest.

It’s all about your commitment

Working on our finances is similar to working out in a gym. You have to find the right way that works for you. You need to feel comfortable with the method you chose to ensure that your commitment to your goal never fades. As long as you got this in place, there is nothing to worry about and a budget might be not necessary.

Having said that and to stick with the gym analogy, if you got ambitious targets then you got to put a lot of effort into it to make it happen. A budget is just a tool that can help you to understand how the game works, but even a budget will not replace your commitment and efforts.

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