Budgeting is a word which can strike fear into the hearts of many. This is because it means, to most anyway, a period of belt-tightening and of denying oneself the most fun things in life. This is what is known as restrictive budgeting. While it works well providing you have the discipline to stick to it and don’t come up against unexpected catastrophes, it can, as it says on the tin, restrict you!

Signs your budget is too restrictive

There are several signs your budget might be a little too tight:

• You feel like you’re ‘missing out’ on the pleasures in life

• You’re avoiding social activities – a major indicator something needs to change
• Saving has become your ultimate goal 

Professor of Economics at the City University of New York is quoted as saying ‘an overly restrictive budget can be just as detrimental as not having a budget at all’. What he means is that a budget plan which sacrifices quality of life is not worth having.

Shift to proactive budgeting

This involves moving from a rigid mindset of the limitations your budget places on your finances. You need to one of strategic financial planning and growth. Instead of focusing on what you think you’re not allowed to spend, focus instead on how best to allocate your resources for long-term benefits. 

Proactive financial planning means configuring your resources to be better prepared for any potential challenges or emergencies. This works better than just reacting as they occur and hoping for the best.

How to start your proactive financial planning journey

First of all you need to be honest with yourself and sit down, with the family if necessary, and make an honest appraisal. Consider your income, assets, expenses and debts in order to understand clearly where you can begin to restructure.

Define your goals. Work out what you want from the future such as paying off a mortgage or other debts, expanding a business, boosting retirement savings, moving house. Define which of these are short-term and long-term goals.

Prioritise what you value. This could be the roof over your head, your child’s future or staying free from debt. Then allocate your money strategically in accordance with these values. Strategic allocation of resources is much more effective then simply cutting expenses in areas which are unimportant.

Look for ways to increase your income. Look at how you could divert money from a current account into a tax-free Isa for example. Even a small amount of tax-free income adds up over time. Set up automatic transfers to savings or investment accounts.

Consider a budgeting app. A free app such as Emma allows you to connect two bank accounts and it will categorise your spending and expenses. Be careful with these and do your research before signing up.

Create an emergency fund. Do this to plan for the unexpected and avoid unexpected financial stress.

Ultimately, proactive financial planning means taking control of your money rather than letting it control you, planning rather than reacting.

Setting up an effective and successful roadmap with proactive budgeting is the way forward.