As I’m wrapping up a few things to prepare for the busy holiday week, today’s entry is written by Sean, a Fabulous Financials reader. It is well-written and very timely because the underlying message is relevant to our current economic issues. Enjoy! [-SM]
Even in the midst of the current economic climate, when it’s obvious that saving money and operating on a budget are good things, a surprising number of people balk at the idea of getting their spending under control in an organized way. Consequently, they wind up feeling resentful and deprived rather than claiming a sense of accomplishment for being in control of their own monetary destiny. “Budget” is not a dirty word, nor is it a difficult process.
No one knows what they can realistically afford until they understand what they are currently spending. The first step in developing a successful budget is a month of income and expense tracking. In whatever way feels most comfortable or works most efficiently, the would-be budgeter should keep track of everything that comes in and everything that goes out for a month in clearly understood categories — utilities, rent, groceries, and so on. For the economically panic stricken whose immediate response is, “that’s not fast enough,” science tells us that the act of observing changes that which is observed. As soon as a person starts paying attention to their spending, their spending habits change.
Record keeping should not, however, stop, once a budgetary pattern has been established. Efficiency experts agree that keeping track of what you have done is actually more effective than listing what you need to do. Consider the quarterly bills that roll in seemingly unannounced, like car insurance and homeowners insurance. Making note of when you last paid these sizeable expenses can allow you to forecast when these bills will come due and allow you to plan for them. Also, if your grocery store has a reward card program or if you’re clipping coupons (both of these are excellent ideas, by the way), keep track of how much you’re saving with these methods as well as tracking the actual cost of the groceries. It’s a tremendous incentive to keep up frugal behavior when the shopper can see a $250 savings thanks to store brands and doubled 25-cent coupons at month’s end.
Credit cards don’t belong in the budget picture, at least not in the early days. Swiping a card is easy. Writing a check or counting out bills is tangible. Part of the disciple of keeping a budget is making money and expenses real again. If, after several months of living by the budget, a credit card expense is manageable — meaning there’s enough extra money in the budget to pay the balance in full or at least twice the required amount of the minimum payment each month — the card can be pulled out and used. The best rule of thumb is to be able to pay off the entire card balance at month’s end with no carry over and interest accrued. If that can’t be done, charge one thing and pay it off completely before anything else goes on the card.
Americans have been living in a climate of instant gratification for at least two decades. Now, with new homeowners often admitting they’re buying a foreclosure (which means someone else lost their home) and water cooler conversations are more about credit scores than football, delayed gratification is back in. Developing a budget and sticking to it does not have to be punishing. It simply means taking a sober, realistic look at individual financial health and accepting what is and isn’t possible. Working an amount into the budget each month to be saved toward a goal or goals will quickly reveal that savored long-term accomplishments taste much better than gobbled instant acquisitions.
