When I was younger, the word “budget” had negative connotations. If something was bad, it was “budget”. I had an aversion to the concept of budgeting – of admitting that I didn’t have the money to do everything I wanted, or admitting that I had sometimes I had to make compromises.

As I’ve grown older, I’m still reluctant to use the word “budget”. I don’t like saying that I can’t afford to do something. So I’m not yet where I want to be.

But I have come around to the concept of budgeting. And the reality that everyone has to compromise when making financial decisions. 

Big businesses have budgets. Governments have budgets. Even Bill Gates has constraints in terms of what he can spend money on, and needs to make trade-offs and compromises. He’s going for polio, but he’s not aiming for cancer and HIV, for instance.

So of course, as an individual and as a member of a family, I have to make similar compromises and trade-offs. 

Technically, could I afford a Porsche? Yes. Relative to the other things I need and want to do and buy, can I afford a Porsche? No. I wouldn’t be spending my money in the way that reflects my values and desires. There may be a time when, from this perspective, I can afford a Porsche, but that is not currently the case. 

The same goes with the kind of house I would like to live in. Could my wife and I afford the kind of house we want? Quite possibly. But would it be a good decision, right now, in light of the other things we want to do in our lives? No. Not yet. From this broader perspective, we can’t afford the house yet.

Having a budget means that you are making conscious decisions about your spending priorities, and ensuring that your spending reflects your values and desires. Not thinking critically about these things is a sure-fire way to ensure that your hard-earned money gets frittered on the things that you don’t really want.

Sonnie Bailey

Sonnie is an Authorised Financial Adviser (AFA) and former lawyer with experience in the financial services and trustee industries. Sonnie operates Fairhaven Wealth (www.fairhavenwealth.co.nz).

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