In our discussion last week, we talked about making savings a priority on a monthly basis. Developing a habit of consistent savings is the biggest key to ongoing financial success (remember my definition for success is not having to think so much about money). Savings really needs to be an unrelenting priority for us. It’s just wise money management. When it becomes a priority, it is the answer to all the “but’s”. But I really want an iPad…Not until we set aside our monthly savings. Today, we’re going to talk about another answer to our impulses – the dreaded household budget.
Did Chris just utter the B word on a family friendly blog? O my!
I know. But, here’s the thing. All my fancy financial training seminars that I attend, they admonish us [with much pleading and tears] to never use this horrid word. The people will run! They can’t take it! It’s too evil! Save us! Hide your kids! Hide your wife!
We’re supposed to say spending plan or cash flow plan. In my experience, “spending plans” and “cash flow plans” end up, oddly enough, looking eerily similar to budgets. If however, you are deathly afraid of budgets, you might consider other pet names or references (personally, I love the name Barry – problem is that’s already my nickname for exercise. Feel free to personalize as you wish… )
Budgets really don’t have to be that painful and shouldn’t include any complicated calculations. A great template for a budget that I recommend is spend less than we make this month. For the following month, it’s a good idea to spend less that you make.
I am a big fan of doing what works when it comes to budgeting. I get a kick out of the zealots who say that it has to be exactly one way or another. Remember, the purpose of budgeting isn’t mastering the intricacies of budgeting. Budgeting is a tool that we use to help us move in the right direction and think less about money. If your budget is doing that for you, I don’t care if it’s a stick figure of Benjamin Franklin.
That being said, if you are not used to budgeting, the best way to get into the habit is definitely to take the time to design a thorough budget and work at following it for at least a year. Similar to savings, the beauty of following a budget is the character traits that it builds.
I mentioned above that budgeting is one strategy for eliminating impulsive decision making. Your money is spent intentionally. It develops the habit of forcing our daily choices to conform to the overall course that we have chosen. As the saying goes, if you don’t know where you are going, any road will take you there. If we are going to be ruled by something other than impulses, we have to have an idea of where we are headed.
Have discussions with your family about money and why you choose to spend it differently than the Hendersons next door. When people understand the why of budgeting, it brings purpose to the “no’s” involved. Gretchen and I aren’t just saying no to new living room furniture for the pure joy of denying ourselves. We are doing it because we have defined priorities, and the living room furniture isn’t at the top yet. We’re on the same page and have been controlling our money long enough to have experienced the benefits (like an emergency saving fund). We count these benefits as more worthwhile than cashing in and upgrading the MANY things that could be upgraded here (our couch really is older than we are – but, you know, you can’t buy life experience).
To start budgeting, I, along with many others, recommend tracking and writing down ALL expenditures for one month…as painful and eye opening as it might be… This will give you an approximate idea of where your money is going. Put the expenses in appropriate categories (food, transportation, etc.). Look these over and calculate your net monthly income. If it varies, take your 2011 W2′s and 1099′s and divide by 12 (for 12 months in a year) for a working average. Use this information to budget out your spending by categories for the next month.
Don’t forget to include savings and occasional expenses as line items in your budget. Have an amount allocated each month for repairs and maintenance of vehicles and the house. Set aside money monthly for gifts. The idea is to have the money set aside and waiting in any given category when the time comes to spend.
The first several months will include a lot of adjusting of amounts in categories as you get a better feel for what is realistic. You’ll definitely blow your budget in a few categories during this time. Don’t get caught up in that – the main purpose of this time is to build the habit and to really figure out what works.
This whole process will promote intentional, proactive thinking about your spending, which is really by far the most valuable benefit of budgeting. As much as budgeting may sound like bondage, you will find it brings a freedom in knowing that you are dictating your money and not being dictated by it. Your kids will be learning how to truly reign in and manage a resource that so easily dominates and destroys because it is misunderstood or left unchecked.
As your kids get old enough, be sure to help them learn simple ways of budgeting their money and experiencing the rewards of the hard work of saving. In the process, they will be learning so many deeper character principles that are more important and more valuable. Few people are proficient at standing up to their now-impulses and directing their lives from a place of discipline, principle, and intention. I know I greatly desire to see Isa grow up understanding the value discipline and experiencing the reward of these traits.
To sum up, budgeting is a necessary tool for financial success. There is no “one size fits all” for budgeting and it is only the means to a greater end. The end is what we should be measuring. Practice budgeting because it is a great discipline and a great model. Budgeting should help lead us to greater household financial proficiency. As this proficiency develops, you may find that you are fine scaling back the thoroughness of your budget. Dave Ramsey hates me right now, but again, the budget itself isn’t the point. Successful financial management is.
Embrace the “B” word. Learn from the “B” word. Appreciate the “B” word. If you are already budgeting and it’s not working, make changes! Never budget to budget! Do what it takes to promote success. Find something that works.
Does you family have a written budget?