Budgeting is big news at the moment. The Financial Crash put saving money at the top of the international agenda. Personal debt and government debt are making headline news. For the Government, this has meant massive and controversial cuts in public spending. Households in the UK are in massive debt, as if they’ve been splashing out thousands on Amex travel every summer, although in reality a massive wage squeeze means that much debt is run up as a means of meeting every day bills.
Many of us are in need of better money management. Experts would like to see financial education made part of the national curriculum, so the next generation can go into their adult lives with their eyes opened to the way credit and debt works, the dangers of short term credit and real budgeting skills.
The simple answer, of course, is spend less. Most experts believe that the best way to do this is to start keeping a track of where your money goes so you know where to start cutting.
However, some psychology and savings experts disagree, and warn that the conventional wisdom on budgeting and saving could end up being counterproductive.
Here are the three dangers these dissenting experts see, and why they can harm your financial health.
1 – Sweating the small stuff
If you’ve read a piece of savings advice that doesn’t recommend making sandwiches for the office and signing up at your local library, then you’re extremely lucky.
These will no doubt save you money. If you drink an expensive coffee every morning and you switch to a glass of water, you’ll certainly have a couple of extra quid in your pocket. However, the logical thinking that pounds will follow the pennies has a certain, but limited, truth to it.
If you’re in need of serious help sorting out your finances, those couple of quid will take years to make a difference and are unlikely to be the chief cause of your financial plight.
Small savings can make you feel empowered, but also remind you how far you have to go. In fact, it’s by looking at your big, expensive purchases that are most likely to be the cause of financial problems.
So, take a look at your big outgoings. Think about your mortgage, your car – could you downsize either or both of them, can you research a better mortgage deal. These one-off moves can save you far more than all the homemade Marmite sandwiches in the world.
2 – No room for manoeuvre
The web has given us hugely powerful – and usually free – financial management tools which can put your life into a lovely column of figures for you.
However, you might be better off ignoring these. Certainly, if you’re obsessively noting every last penny you spend on an online spreadsheet, you could end up… well, miserable.
We’re not meant to live too rigidly. History is full of failed attempts to regulate everyday life. So, if you’re categorising your budget and because the opportunity for a great night out falls into the entertainment rather than the dining category you turn it down, you need to think again.
Serious debt can cause serious misery and demands serious action, but if you’re not on your uppers and you’re letting budgeting ruin your life, you need to reassess.
3 – The bigger picture
Having a big idea in mind, a realistic goal, is a great help. And make that goal about saving (unless you have debts, which should always be your first priority).
If you can squirrel away 10-15% of your income each month, you probably don’t need to worry about buying that coffee.
Luke Fitzgerald is a writer for a number of money sites and has worked for a variety of blogs in the area including for Amex Cards