For most people, it doesn’t matter what they earn, they will always be short. Why is this? Why do so many of us go through life always worrying about money?

One of the causes is what is called “standard of living”. All that means is that when you earn more you choose to spend more.

Another is that the more we earn, the more we commit to spend and this is the kicker. If there was no commitment (to pay the bond, the rent, the car instalments, the private school fees), then if we found ourselves a bit short one month, it wouldn’t be a trainsmash, but when we’ve committed we’re stuck, we have no room to manoeuver.

Also, when we commit to spending, we usually fail to take into acocunt that things will go wrong. The car will break down, the fridge will pack up, the school will want us to buy special kit for our child ….

You don’t need to live like this. Not if you manage your personal finances and you do this by writing a budget. Remember, if you can’t even solve the problem on paper, you’ll never solve it.

Your budget should start with your expected income month by month for a year. Then you list all your repayments/commitments, add them up and subtract that from the income. You’re now left with what is called your disposable income and you budget to use it on what is called discretionary expenses. These are expenses to which you are not absolutely committed, like food, cleaning materials, clothes, maintenance, repairs, set-aside for holidays etc. List them, add them up and subtract them from your disposable income. If the result is negative, you’ll have to adjust your discretionary income. If the result is a positive balance, then plan to put the extra aside for the months when things go wrong – the best place to put it is to pay against your bond after making sure that the cash will be accessible when needed.. You simply have to have a cushion for the unexpected, so it’s no use if the end result is not a positive balance.

If you simply cannot make the result positive, then you need to re-look at your committed expenditure. You’re committed beyond your means and must cut back. Maybe you can’t cut back immediately (because you’ve committed), but you must take steps to reduce the commitments as soon as possibile.

Stick to your budget.

When I was bankrupt at the age of forty, we made a game of our misfortune. I got a job as a schoolteacher and then an afternoon/evening job as an accountant for a car company. I got a free car and quite good extra income. We set a goal to pay off my girlfriend’s bond. To do this, we would pay any spare money that we could scrape together off the bond via the local ATM. To help us along, we would declare an occasional “miss-a-month”. In those months, the answer to any expenditure that could possibly be avoided or delayed was “no”. We’d eat anything that happened to be in the freezer, avoid all unnecessary foodstuffs, cleaning materials, everything. It was amazing how much extra we had in those months to feed into the ATM. Of course, we couldn’t do it every month, it was inherently unsustainable, but once the extra money had been paid off the bond, we never drew against it. I built a spreadsheet of the repayment of the bond and converted it to a graph that showed when it would get to zero. whenever we paid extra (that is, whenever we paid capital off the bond) that would also reduce the amount of the regular repayment that represented interest so More of it came off the capital. We paid off the bond within a very short time and had a lot of fun doing it.