Call it a spending plan, a money management blueprint, an income distribution strategy… whatever you want. It’s a budget, and everybody needs at least one. Further, I believe everyone should have to prove adept at its use before one can have a driver’s license, file an income tax return, and perhaps even before being allowed to own a cell phone. It’s that important.
I grew up as a child of a child of The Depression; the “Big One” that began in 1929. Perhaps you’ve heard of it. And my mother grew up in New York, so tough times there were truly tough times. In our household, the sounds of eagles screaming as pennies were pinched was commonplace. “We can’t afford it” was the first thing I heard every morning. It wasn’t until well into my adulthood that I realized my parents were not, in fact, paupers. What they were was very, very wise. Their strategy for financial success was to live far below their means, plain and simple. Each month, before a bill was paid, or a pair of tennis shoes bought, money went into four different directions: a savings account, a Christmas club account, a retirement account, and to our church. If each one of those priorities got five dollars, that was five dollars more than it had last month. No excuse worked; every month was the same, regardless. And rearing six children on my dad’s modest salary must have brought about some months where that discipline was more than a little difficult.
Today in my practice giving financial advice, I begin most of my conversations with asking about a budget. I get blank stares, nervous giggles, and occasionally an enthusiastic nodding of the head.
Why do people today struggle so at managing their money? By far the majority of people who come to me for help complain of having too much month at the end of the money, but when we dig down to see where their should-be-ample salaries are going, there are black holes everywhere.
A budget doesn’t have to be a complicated thing! I use a spreadsheet. If you’re not comfortable with that much technology, use a notebook. Or I have a sheet I’ll provide; I’ll even make copies. I’ve seen a dry-erase board on a refrigerator serve as a perfectly functional budget tracker. One popular financial guru suggests using envelopes to keep track of cash. Whatever works for a person/family is what I suggest they do. The important thing is to know where your money is going every single month.
Here are a few other tips I regularly provide. First, SAVE. Save something every month, no matter what. Put it away where you can get to it, but not too easily.
Second, either commit to keeping a ledger on every single debit card swipe, or get rid of the card and use only cash. Dunn & Bradstreet conducted a study that showed we spend 12%-18% more when we swipe a card than when we use cash. The average cash sale at McDonald’s is $4.50, while the average swipe sale is $7. (Konsko, 2014) Cash hurts; cards don’t! I keep my debit card inside my checkbook, and before I swipe, I write the amount in my ledger. It confuses cashiers. It’s fun. My son, however, keeps an index card folded around his card. With each swipe, he borrows a pen and writes down the amount.
Third, watch your online banking accounts at least weekly; preferably more often. You should know exactly what has cleared and what hasn’t, and keep an eye out for errors. Especially in this day of identity theft, it’s crazy not to monitor your bank accounts. I have a funny story about being reprimanded by my youngest when I accidently used his account for a purchase. He called me out of a meeting literally 30 minutes after I’d made the error. I was in trouble.
Fourth, successful budgeting cannot happen in a vacuum. One member of a couple cannot do it alone, and a family cannot successfully implement wise spending if the children aren’t on board. Couples, if you need a third party intervention, get one. And parents, just think of the opportunity you have to teach your children! Whether you’re a believer in allowance or not, they will one day be more financially successful because of the lessons you teach them now.
Budgeting is not, in fact, a “B” word. Budgeting is freedom. The peace of mind that comes with knowing where every penny is – and is not – gives a sense of comfort and control that… well… cannot be bought!
Barbara Runnels Coats, FICF, RICP, Modern Woodmen of America Financial Representative