by Betsy Westcott of Ladies Finance Club
“There is freedom in Structure”…
One of my coaching clients said this to me the other day during a 1:1 session. In the moments leading up to this statement we had been debriefing on the money mindfulness and management practices we had put in the month before.
Her comment struck me as I hadn’t thought about it that way before but once she had said it rang so true. I began to think about how it’s a truism that’s applicable not only to money management but to life.
I used to think that having structure around your life meant limiting yourself, restricting your choices and creativity but I was wrong. What I learnt early on was that without structure there is chaos and an overwhelming number of choices to be made. Have you ever experienced the agony of too many choices? When there’s too many possible decisions so that you simply make no decision.
What I’ve found is that when I had structure around how I spend my time and energy I have focus and the things that are most important to me are prioritised like my self-care, connection with others and priority work.
The same applies to money management. Many of us think that creating a money management framework, budget or spending plan means restriction. Being bound by rules and denying yourself any pleasure. The association is negative.
Having a structure for your money actually gives you freedom.
What actually happens, as my client so beautifully articulated, is that having a structure for your money actually gives you freedom. No longer does she worry about her future plans, no longer does she have to perform that arduous mental arithmetic to keep track of her money, no longer is she caught short, and no longer does she worry about every purchase. She has a plan for her money, she sets herself up for success, and enjoys comfort and freedom as a result.
So how do you create structure? How do you manage your money with ease?
Step 1: Get real with your money
What do you actually earn and what are you spending your money on? Yes, repaying any loans, buy now pay later accounts or credit cards needs to be included in that too. You can work this out by downloading or reviewing the last 3 months’ bank statements or if that sounds too tedious then perhaps download a personal finance app like Fu, Money Brilliant or Pocketbook to do the heavy lifting for you.
Step 2: Categorise your spending and savings into 4 categories
- Fun times - this is flexible spending and mostly used for discretionary and fun time expenses. For me this, this the money I spend on lunches, brunches, clothes, personal care, make up, snacks (VVIP), home wares, ubers, public transport etc. I give myself a general ‘allowance’ for this category rather than work it out down to the dollar.
- Financially Adulting - these are you bills and recurring expenses.For me this covers the mortgage/rent, phone bills, internet, utilities, gym memberships, streaming subscriptions, insurances, groceries and loan repayments.
- OMG Savings - this is money set aside to get you out of those ‘oh my gosh’ moments. Start by saving $1000. If you can, build these savings up until you have a balance that could cover 3-6 months worth of living expenses if need be. OMG moments are those curve balls that life throws at you like the car breaking down, needing urgent dental work, a flight home to help an unwell family member, losing your job or emergency home repairs. What’s not an OMG Moment is an impulse shopping purchase (OMG those shoes are so me!) or late night drink purchases.
- Future Me - this is money put aside to help you reach your goals!It could be a short term goal like a holiday or a wedding. Alternatively, you might be working toward a longer term goal like building up a home deposit, starting a business or retiring early.
Total up the spending under each category - you’re going to need this later. Remember, calculate the spending on the same time basis - so make it an annual spend, monthly spend or weekly spend. Doesn’t really matter which it is, just be consistent.
Step 3: Set up your bank accounts so that you have different accounts for each category
Always look for fee free accounts and when it comes to you OMG & Future Me money consider a high interest savings account to earn some interest on the balance. My tip is to always give your bank accounts a nickname. This way you know what each account is for so it’s easy tracking and it’s a heap more inspiring than simply a number like 112 -344- 566 (snooze!).
Step 4: Automate your money!
Ok - we’re on the home stretch. So your pay will get paid to either your ‘Fun times’ or ‘Financial Adulting’ account. Doesn’t really matter which one. When it does come in transfer the money allocated to each category. Better yet, set up an automatic payment so it happens instantly!
Make sure you’ve adjusted the totals amount to your pay cycle. So if you get paid monthly, transfer the equivalent of a monthly spend for each category.
Step 5: Sit back and relax
Now you have a structure for your money. Provided you’ve been fairly accurate in your allocation to each category, you can enjoy the peace of mind knowing you’ve already saved toward your goals, you’ve covered your bills and have money left over for fun times!
I know that this looks like a little bit of work up front but I would happily trade an hour so of my time today for days, weeks and even years of freedom, ease and comfort.
I’ve been using this structure for over 10 years now and it’s never let me down. Over the years I’ve added a few sub categories but these are the main four categories I use to manage my money.
