NONE of us can say we have no cap on what we can own or experience; we will always be constrained by limited time and money. Such is life.
In Charles Dickens' famous 1850 novel David Copperfield, we encounter the colourful, upbeat optimist Wilkins Micawber. This charming character, Mr Micawber, is based on the novelist's own father, John Dickens.
John spent three months in the debtors' prison of Marshalsea in Southwark (pronounced suh-thuk) from February till May 1824, when Charles was 12 years old.
Twenty-six years later, Charles had Mr Micawber utter this memorable line: "Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
Here's some context to help us make sense of those currency references.
From the 17th century, and quite possibly earlier, the old British currency system of 12 pence to one shilling, and 20 shillings to one pound was used in the United Kingdom and throughout its far-flung empire. This confusing non-decimal system of coins and notes persisted till Valentine's Day 1971.
Then, on Feb 15, 1971 — dubbed D-Day (for Decimal Day) — began the more comprehensible conversion rate of 100 pence to the pound.
Right. Let's now segue back to Micawber's formula for happiness:
If someone more than 170 years ago earned £20 a year, yet only spent "nineteen nineteen six" or 19 pounds 19 shillings and 6 pence, he would be cash flow positive for that year to the tune of 6 pence.
Now scrutinise Micawber's formula for misery:
If someone earned £20 but spent "twenty ought and six", he would be spending 20 pounds, 0 shillings and 6 pence, and thus be cash flow negative by 6 pence for the year.
Bottomline: Being cash flow positive is wise, while being cash flow negative leads to heartache.
PEN AND PAPER BUDGET
The way to fiscal health is sound budgetary control to ensure that we spend less than we earn, save and invest the difference, and do so patiently, diligently, consistently and wisely for a long time.
The 19th-century British prime minister William Gladstone once declared, "Budgets are not merely affairs of arithmetic, but in a thousand ways go to the root of prosperity of individuals, the relation of classes and the strength of kingdoms." Smart man.
The more you and I crave personal prosperity, the greater attention we should pay toward wise budgeting.
Throughout the second-half of the 20th century, the advent and then the cancerous proliferation of credit cards made it more difficult for regular people to stick to a budget.
For us in the 21st century, it is even more difficult to live within our means because of snazzy marketing campaigns powered by algorithms — built upon a blend of behavioural finance and artificial intelligence — harnessed by banks and retailers to extract from us what little money we may have today and much of the money we will earn tomorrow.
Ironically, our best defence against that impoverishing modern-day onslaught upon our financial health is an old-fashioned pen-and-paper budget.
You may remember that in last week's column (www.nst.com.my/lifestyle/sunday-vibes/2021/05/690477/money-thoughts-ikigai-—-our-smartest-key-wealth), I promised to take you on a trek through LoeB, which is what I call the "Land of effective Budgeting".
Today we'll embark on an overview of that fascinating terrain and in the coming fortnight, travel much deeper through its rich, fertile land.
LAND OF EFFECTIVE BUDGETING
For more than 20 years, I have taught my financial planning clients to start their respective journeys to superior fiscal health by using an old-fashioned tool, a tiny notebook that fits into their pocket, in tandem with a pen.
I urge them to jot down every single expense in that notebook for a minimum of two months.
The psychokinetic act of writing actual sums spent lights up portions of the human brain that remain oddly dormant when we merely type notes on a smartphone app or a computerised spreadsheet. But don't get me wrong: Such tools are wonderful.
However, in my opinion, they should be used later, after precious information is gleaned throughout a disciplined couple of months of recording every single personal expense in a handy paper notebook.
In Japan, there is a manual budgeting system called kakeibo that translates to "household financial ledger".
This short YouTube video explains the system and equates kakeibo to "household account book". It is worth watching: https://youtu.be/Re4sv-vIGIY.
So, as we begin our journey through LoeB, work through a kakeibo-based mental exercise.
This effective Japanese budgeting system is built from the ground up from our own answers to four questions:
1. How much money do I have, as in how much do I earn, say, in a month?
2. How much money would I like to save in that period?
3. How much will I spend?
4. How might I improve my cash flow surplus?
I urge you not to rush through your answers to those questions. Please invest anything between three hours and three days to think through your answers on paper. Use another, bigger, notebook you might label "My kakeibo journal".
If you are serious about transforming yourself into a master budgeter, don't rush the process.
Next week, we'll learn how to not view your budget as a debilitating, constricting straitjacket, but rather a liberating wealth builder.
© 2021 Rajen Devadason
Rajen Devadason, CFP, is a licensed financial planner, professional speaker and author. Read his free articles at www.FreeCoolArticles.com; he may be connected with on LinkedIn at www.linkedin.com/in/rajendevadason, or via rajen@RajenDevadason.com. You may also follow him on Twitter @Rajen Devadason and on Clubhouse (Rajen Devadason).