If you’ve ever found yourself trying to stick to a budget, only to find it just doesn’t work, Melissa Browne, financial educator and author of Budgets Don’t Work (But This Does), says you’re not alone in feeling defeated, (or finding yourself in an argument with your partner!) when you have yet another spreadsheet fail.
Instead, Melissa says we need to think about a new way to manage your money, especially during these unprecedented times of financial uncertainty.
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Why budgets don’t work
Melissa says that budgets don’t work for the same reason that diets don’t work – because people feel restricted. “Once they’re over, we just want to splurge,” Melissa points out. “Often what happens with diets is we put on all the weight that we lost when we were on it. So instead, when it comes to food, it’s eating well and understanding our physiology and figuring out what works for us. And for money, it’s the same. It’s understanding our makeup, understanding our money stories and figuring out a system that works for us.”
One size doesn’t fit all
Everyone needs a system to manage their money, but the trick is that not everyone will find the same system workable. Melissa says that everyone has a ‘money type’ – similar to a personality type – and finding out what yours is, is the key to unlocking how to best manage your family finances. She says, “We’ll still need to understand our bills … we’re going to need a system. But it’s not that one-size-fits-all.”
Work to your strengths
Understanding yourself and why you behave with money the way you do is part of how you’ll be able to determine your ‘money type’. Once you know your type, coming up with a successful plan will become possible.
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“When it comes to money,” Melissa explains, “we don’t have a language around it. So we’re not used to understanding the traits to do with our money and those inherent ways that we act, we just think, ‘this is normal for us’. And the reason that I categorise them as four different money types, is to show you that some of how you’re feeling and some of how you act with money, is actually really normal for you. And it’s actually about finding the strengths in that money type, and minimising the weaknesses.”
Start using a new language to think about money
For a ‘creator’ money type, Melissa says they’ll appreciate words like ‘manifesting’. Mantras, gamification, rules and rewards when approaching money, will also work for this type. On the other hand, a ‘worker’ money type, would hate this approach and think the ‘creator’ is doing it all wrong. Melissa explains, “Neither is wrong. It’s just not right for you.”
It’s not business as usual
With many Australians being financially impacted by COVID, finding a way to successfully manage the money we have is more important than ever. “Depending on what your money story was growing up, and depending on your type, you may either be hoarding cash like never before because you’re just scared and you’re just not spending it. And it’s from a fearful place,” says Melissa. “You might be overspending, and just trying to pretend like it’s business as usual and head in the ground. You might be suffering from absolute paralysis by analysis and overthinking but not actually doing anything for your finances, other than being in your head … Or you might just have this whole story of – I’m not enough to get through now. And certainly, for those of us with a money story around ‘not enough’, can be really tough at the moment.”
How to manage money in a time of COVID
But Melissa says this is not business as usual. With the Federal Government changing the JobKeeper subsidy from the end of September 2020, Melissa stresses that taking financial action now is important.
The action you need to take depends on the position you’re in. Melissa explains it may be wise to look back through you last three-month’s worth of bank statements and swap, pause or reduce expenses. Or it may be wise to put any excess from JobKeeper into a short-term savings account for a buffer. Regardless of your position, everyone needs to work on having three months worth of savings so that whatever happens in September, you’ll have a three-month buffer window that will buy you time to figure out what to do next.
Why we need to talk about COVID and finances with kids
Being involved in the family finances in the sense that it allows children to be able to help, is a good idea. Melissa points out, “I think it’s really important to realise we need to take action and we need to involve the whole family in that action … it is having chats with our little ones to say, ‘You know what? It’s not normal at the moment. And yeah, we used to do four activities a week before? Now we need to pick one… This is how you can really help the family. You know, this is how you can help Mum, or this is how you can help Dad.’”
Should we still be saving for a home?
While some of us may be now in a situation where we’re living week to week, others will find they have enough cash that they can take advantage of the situation – it’s a time of extremes. When it comes to saving for a home, Melissa says, “If you still can afford to put that money aside, definitely keep doing that. Because there are going to be opportunities over the next couple of years, where potentially property prices will fall; we’ve already seen the share market fall.” There are opportunities even during these trying times.
It’s never too late to get your money in order
“I think a lot of us feel a bit of shame around money,” Melissa says. “Or we feel we’ve grown up with money stories where, us girls particularly don’t talk about it, and they certainly don’t say they want more of it. Or if we’re a creative type, we might just think that we’re not good with money. We might have grown up with stories around a man taking care of a woman. I think it’s really important to understand that the right time to start thinking about money and acting better with money is today.
It doesn’t matter what you’ve done up to now, it doesn’t matter whether you think you’re at the right age and stage. It’s about deciding, okay, right. I might not think I’m great with money. But let’s unpack why that is. And particularly if I have little ones, I already have so much stress. Let’s reduce the financial stress. By actually doing money a better way.”