The Myths of Budgeting

For some reason making and more importantly following a budget seems to be the bane of most people's existence.  Sadly, now it is considered restrictive, outdated and unnecessary.  I want to help you with these myths because living by one is an essential part of building wealth and succeeding with your money.  The simple fact is that if you can't live on a realistic budget then you will always feel broke and wonder where your money went.  This means that you have to learn to live on less than you earn.  I know we all know this but the way our culture has developed over the last 80 or 90 years makes it especially difficult to live by.  Our generation isn't taught to work, earn and save to buy things like our parents and grandparents did.  Instead we are taught to buy whatever we want when we want using credit, because we 'deserve it' and we 'work hard'.  I think our grand parents worked a lot harder than we do today and they certainly didn't come home from work at night just to park themselves in front of the mind numbing television.  I mean come on people! We are privileged to live in the greatest country in the history of the world and we spend our time complaining about the latest gadget we don't have and acting like children throwing tantrums because we want it NOW!


So lets talk about what a budget is and isn't.  What is a budget? It's simply you telling your money where to go instead of wondering where it went. (Yes- that is a Dave Ramseyism.)  It's an intentional plan of where you need and more importantly want to spend your money.  You're the one in charge of your money, but (like I quoted) if you don't learn to manage your money, the lack of it will always manage you.  If you think it's too restrictive, then change it if you want.  If you don't like your plan or follow it, guess whose fault that is?


I believe budgets fail for 3 specific reasons and avoiding them is half the battle.  First, it's not month specific.  Every month varies.  There is no such thing as a perfect month.  You have to make a new budget every month- not once a year.  This is especially true if you have an irregular income because of self-Employment, commissions or overtime.  (I will go into more detail about this in another post.)  Second, it's not realistic.  You have to account for the little things (clothes, personal care or quarterly & semi-annually bills).  These things tend to sneak up on us and wreak havoc on our budget.  Third, you're not following it.  Chances are that the first time you sit down and actually go over the numbers of what you have been spending you will be shocked at how much you've spent in restaurants, going out or on clothes.  Whatever your troubled category is, you have to face it head on to form a plan.


In summary, as you make your basic budget for the month keep a few things in mind.  Always take care of your four walls first.  This means food, clothing, rent/mtg, lights, heat/air, water, gas, phone and transportation.  If you are struggling, doing this will give you a sense of power and hope.  Give it time.  Just like trying to get into shape physically, toning up financially takes practice and time. Plan on making changes and mistakes the first few months.  Don't give up!  It's very easy to get derailed by little things that come up during the month.  This is why it's so important to have a budget in the first place.

Tip & Quotes of the Week Feb 19-26

Stop Borrowing

If you want to get out of debt, you have to stop borrowing money. For some of you this might sound blasphemous because the way our culture and generation has been brought up thinking about debt. But I assure you if you are serious about getting out of debt then you can't borrow your way out. No matter how hard you try moving money around doesn't pay it down- you do. If you are digging a hole, you can't dig your way out. The only way out is to climb. So stop digging and start climbing out!

Homework:

This is more of a challenge than an assignment. For one month- Stop using your credit cards. At the beginning of the month or on pay days withdraw enough money to cover the basics- groceries, clothing, a little fun money. Decide how much you need and take only that out. When the money runs out STOP SPENDING. This is why I said be realistic when planning your budget. $100 a month isn't going to feed a family. And if you're single you don't need a $100 monthly clothing budget. I will have a post that will go into more detail of why this really works.

"If you're thinking of debt, that's what you're going to attract" Bob Proctor

"The borrower is servant to the lender" Proverbs 22:7

The Power of Cash

I know some of you, if not most of you must think I am off my rocker for suggesting that you stop using credit cards.  After all that's what sophisticated financial people do, right?  Well they might be sophisticated but they are broke.  I know because a few years ago I thought I was cool, smart and sophisticated every time I used them.  But in the back of my mind I knew I'd be dreading the bill at the end of the month and I would be gripped with guilt wondering if I had it in my budget .  Before I go any further I want to share with you our story.  My husband and I have been married for almost 8 years and until the fall of 2007 we used credit cards for everything- groceries, gas, clothes, eating out and for a short time some of our utilities.  Of course me being smart and sophisticated, this was all in the name of getting reward points or so called 'free money'.  I thought I was smart and on top of things because after all, we paid our bill in full when it came due.  The only problem was that I found it very difficult to stay on budget and put any money into savings because we were broke.  Switching over to cash was truly a turning point for us.


I came across a statistic that said on average credit card users spend 12-15% more than with cash.  Why do you think fast food joints accept plastic?  If you think about it, this far out-weighs any 3 or 5% cash back you receive or the airline miles that you'll never redeem.  (Yes, 75% of airline miles are never redeemed.)  I mean really, would the credit card companies offers these 'deals' if they were losing money?  I wasn't sure I believed it because after all I was a smart saver who shopped sales and got bargains.  But after trying it I discovered I was wrong...big time.  You see something happens when you hand over a $100 bill to pay for the groceries.  It hurts!  You suddenly become aware of what you are spending that money on.  There is no emotional connection to swiping a card and it's a lot harder to stop as a result.  For me, it's been freeing like no other thing I've experienced.  When I buy clothes for my family I don't feel guilty because I wanted to save as much money as I could.  We have learned to accept the fact that when the eat out envelope runs dry we have to find something else to eat.  Obviously, this does take discipline not to cheat and stop by the ATM anyway.  There are a lot of people who kill their budget by "twenty-dollaring" themselves to death.


Now I'm telling you, the first time you try this you will be off with how much you really need.  To determine the proper amount for you, I would suggest going through your statements and total up how much you really spent on groceries, clothes and eating out.  Chances are you will probably be shocked because it might be half again as much as you thought you really spent.  Either you have been in severe denial of how much you really need or you really are spending too much.  With the clothes budget find the average that you need every month because if you are like me you probably don't buy clothes every month.  It comes in spurts with the seasons.  It's those spurts that hurt if you're not anticipating them.  So start accumulating money on an off month.  As far as eating out goes.  The only thing I can say is what are your financial goals?  Will you be eating away at them at the drive-thru or restaurant every week or will they be going toward accomplishing them?


One other thing I want to mention about the power of cash.  Have you ever tried to make a large purchase item like furniture or a car with cash?  If you have, then you know that 90 days is NOT the same as cash.  Not only that but when you walk in to the store with a wad of Benjamins you know it feels different.  Negotiating with real money works.  You can't do that with plastic.  I know these ideas sound as old as your grandparents, but it worked for them so why wouldn't it work for you?  Don't believe me, just try it for yourselves.  You can always go back into debt, right?

Tip & Quotes of the Week Feb 12-19

Goals & Vision

Now that you have recognized that you are the reason for where you stand financially today, it's time to change that! Setting goals about your financial future are an intricate part of that. A goal is only a goal if it has these four things. Otherwise it's just a dream.

1. It must be yours- not anyone else's

2. It must be measurable- paying down debt is not a goal if there is no amount attached to it.

3. It must be written down. This roots it into your soul and clarifies the goal.

4. It must have a time frame- otherwise it won't get done. Whether it's daily, weekly or monthly, it must be clearly defined.

Vision is just as important. Once you have goals you have a vision for the future. Having vision keeps you getting up when you fail at achieving your goals and have to re-adjust. It's the perspective that keeps you going when times are tough and you feel miles away from reaching your dreams.

Homework

Sit down today (with your spouse if you're married)- not tomorrow, not next week, and write down your specific goals about your financial future. What do you envision your life to be like? Where do you want to be in a year, 5 or 10 years? Be realistic about the amounts and the timeline. Make it a challenge and post your goals around the house, in your car, at work. This will keep them fresh in your mind and heart. Remember, if you don't have a plan (goal) your vision will only be a dream.

"The reason most people never reach their goals is that they don't define them, or ever seriously consider them as believable or achievable. Winners can tell you where they are going, what they plan to do along the way, and who will be sharing the adventure with them"Denis Waitley

"If you aim at nothing, you hit it every time" Zig Ziglar

"You must have long term goals to keep from being frustrated by short term failures" Charles C. Noble

Marriage and Money part 2

I wanted to talk a little more about marriage and money.  Some of you may be experiencing some problems with getting your spouse to come to the table.  This is particularly true if you are the nerd and your free spirit spouse is totally oblivious.  My advice is to put the kids to bed, turn off the TV and with no distractions share your feelings on the matter.  If you're frustrated say why in a non-judgmental, loving way.  If you've been married for more than 2 minutes you know that your spouse is not a mind reader.  He or she might not realize the damage they are doing.  This isn't the time to yell and scream and start blaming each other, so if it starts escalating- stop.  If you still can't come to a compromise or your spouse won't be mature enough to realize how this is affecting your marriage I would highly recommend seeing a member of your clergy or a good marriage counselor.  Chances are that trust and communication are at the heart of these issues. Now I don't want to freak you out, but you may be in denial.  If you are just coasting along with this kind of baggage in your marriage, it will eventually blow up past the point of no return.  Your marriage is what you put into it and if it's running on fumes then it's time to pull into the station and get help.  Hold on tight to each other because it's worth working the kinks out to have a better marriage in the end.

Now to those of you who are dating or engaged.  The most important thing you can do for your future together is to talk about your expectations, dreams and goals before you say 'I do'.  There will always be an ebb and flow to marriage but I believe disappointment in marriage is caused by having unmet expectations.  

Marriage and Money

So these ideas have been rolling around in my head all weekend and I just have to share them.  I guess I should back up and give the whole story.  In case you haven't guessed it yet. I am a huge Dave Ramsey fan.  He is a nationally syndicated TV and talk radio host who has inspired millions to change their lives and finances.  My husband and I used his common sense methods of paying off our debt.  It's his ideas that have inspired me to become a financial counselor in the first place because I see how they have changed not only our finances but our marriage. So it only makes sense that I be trained by him and his team.  In April  I will be going to Nashville for a week of intense boot camp financial training.  Last week I got all my training materials that I have to go through in preparation for this.  It's a comprehensive 13 lesson program that he calls Financial Peace University (FPU for short).  There are classes held all over the country.  You just pick a class being held in your area, register on his website and they send you the materials.  For the price of $200, your spouse attends free and you get a lifetime membership so you can go back as many times as you need or want.  This may seem like a lot of money but he quite often has memberships discounted 40% or 50%.  Right now he has a special for $129 and at least a few times a years he sells them for $99.  I would highly recommend this if you are looking for more than just reading a book.  It's a 13 week commitment but well worth the effort.  Anyway, I got the home study version with the entire DVD and Audio library of all the lessons. My husband wanted to watch the DVD's with me and so far we've watched the first 2 lessons.  Can I just say, WOW!  They are both informative and entertaining.


We are also reading a book (that I have quoted) called More Than Enough: 10 keys to changing your financial destiny by Dave Ramsey.  This book is an absolute home run as far as I'm concerned.  It gets into the nitty gritty of the powerful emotions behind money and finances- including marriage issues.  Which is what this post is really about. (Sorry for the long intro.)  As we all know, money fights and money problems are the leading cause of divorce in this country.  Depending what stats you look at, this is sited as the primary reason for divorce in 55% to 70% of the cases.  Everyone seems to know this fact, but these statistics haven't changed in decades.  Well I take that back they have probably increased.  So I want to dedicate the rest of this post to marriage and money.


Obviously (and thankfully) men and women are different.  They are different in many things but especially how they view and handle money.  Men typically see money as a utilitarian means to an end, while women see it much more emotionally, as security.  With financial problems men tend to lose self-esteem, they feel like they've failed their families.  Women tend to feel fear or terror because of the lack of stability and security.  These differences may seem too great to bridge the gap.  But they really compliment each other if you learn how to work together.  That is why this week's tip of the week is about goals and vision.  This is vital to the success of a marriage because if you don't have a shared vision for your future, you will always be trying to pull one another in different directions and once that starts happening the resentment and anger sets in.  It can be a downward spiral unless you correct it by getting on the same page with your hopes and dreams, including financial goals.  This weekend I was particularly struck by the chapter in More Than Enough called "The you in 'unity' is silent".  It is a fabulous chapter about working together in your marriage to solve problems that arise, instead of undermining each other.


Typically in marriage there is a nerd (the control freak who does all the budgeting and bill paying and calculating)  and a free spirit (the easy going, creative and couldn't care less about a budget type).  Quite often the nerd is also a saver, while the free spirit is a spender.  Or they could be reversed where the nerd is a spender who tries to out-earn his or her stupidity and the free spirit/saver, who is very insecure because there is no money in the bank.  Whatever your combination, you must recognize these positions to be able to work through the problems and feelings that arise when it comes to managing the money.  The only way you will truly have harmony in your finances is to work together.  That means the nerds have to loosen up and give the free spirit a vote in how the money is spent.  Change the amounts around together.  The free spirit has a vote even though he or she isn't the one to actually execute the plan by paying the bills.  The free spirit, on the other hand, must come to the table and actually look at the budget that the nerd has prepared, not leaving their nerd to shoulder all the responsibility.  This process leaves little room for complaint on the part of both parties.  If you need to change things, do it. Just remember to be realistic.  You can't spend your utility bill money on going out for a night on the town.  Things still have to balance...after all we're not in congress!

Tip & Quotes of the Week Feb 5-12

How financially fit are you?

Take a good hard look in the mirror. Whether good or bad the reason for the current state of your finances is staring you in the face. That's right you are the only person who can change things for yourself. Are you having a Dr. Phil moment yet? How are things working for you? Personal finance is 80% behavior and only 20% head knowledge. If it were just about the numbers it wouldn't be so hard to change.

Homework: Take a few minutes to think about why you handle money the way you do. Is it some trauma in your childhood? Filling a need that isn't being met? lack of organization? or just flat out trying to impress others? Whatever the reasons nothing is going to change until you recognize the pattern and address the issues. Write down what comes to mind and if need be talk to someone (your spouse, a friend, a therapist) about them.

"Change is very hard and we change only when the pain of [staying the] same is greater than the pain of change" Dave Ramsey, More Than Enough
"Whether you think you can, or you think you can't, you're absolutely right" Henry Ford

Budgeting Software

I had a request to talk about budgeting software, what's good and what's not so good.  As far as I'm concerned, any software like Microsoft Money or Quicken, do the job just fine.  I personally use Money but that's just because I have for several years.  I did try Quicken once and it seemed a lot more confusing, but maybe that's just me.  But according to Google it's the #1 budgeting software.  So I guess it's just a matter of preference.  I like Money because the budget is really easy to set up and track expenditures by whatever categories you choose, but Quicken has the same features and it's mac compatible for you mac lovers out there.  They are both reasonably priced and worth the small investment if you don't have anything.


If you are old school and choose not to use software, that's just fine.  I use an Excel spreadsheet as well.  It's a good basic way to keep track of things.  Now for you real old schoolers, a plain legal pad or memo pad work great for cash flow forecasting.  Did I really just admit how much of a geek I really am because I use all three? Hey, don't laugh too hard...I already know I'm a geek.


As far as software that you should definitely steer clear of.  Anything that costs an exorbitant amount of money, like $3000.  Yes they are out there.  I'm not sure how many of you have heard of money merge accounts or mortgage accelerators.  They work like this-  You pay the company that's "selling" you the software to set a HELOC (home equity line of credit) on your house and you basically use that account like a checking account. Money in money out and the extra every month pays down your mortgage faster.  Now in theory this might sound like it's the best thing in the world but I have never heard ANYONE (well except for the companies that sell them) in the financial world speak positively about these things, and I follow a lot of different financial gurus.  Anything that says you can get out of debt and become wealthy without adjusting your lifestyle is about as bad as those diet pill gimmicks that say "eat anything you want and still lose weight".  I mean come on people don't kid yourselves.  Anyone that has a sixth grade math level could do what this software does. It tells you how much you can pay toward your mortgage every month.  Talk about a rip!

Debt CON-solidation Vs. Financial Counseling

You may ask what the differences are between counseling and debt consolidation? Well there is a HUGE difference. First off, debt consolidation only treats the symptom NOT the underlying problems, while financial counseling is detailed enough to root out the problem. With consolidation the habits and the debt are still there, simply moved creating a false sense of security. That's why 8 out of 10 consolidators are right back into trouble within a few years.


Second, financial counseling is much cheaper in comparison. Consolidation companies typically cost $20-$30/month over 4-5 years. You pay them instead of your creditors. They take your payments up front until you are behind enough that the creditors will cut a deal. This in effect looks like a chapter 13 bankruptcy (structured repayment of some of your debts) on your credit. You'd do better to cut the deal yourself and save the money to actually pay towards the debt. And no I'm not saying to stop paying your creditors on purpose. Of course you should pay them if you can. So PLEASE stay away from these goobers. These kinds of companies are among the top complaints with both the Federal Trade Commission and the Better Business Bureau.


Third, I hope we all have learned the lessons of the recession we just got out of. Remember the trouble many homeowners got into by 'moving' debt onto their houses in the boom years only to have it cave in on them when the housing market dropped like a rock? If you were among those numbers I'm truly sorry. Consolidating debt into a house is one of the riskiest behaviors out there. Unfortunately, millions didn't realize the risk until it was too late. Well there you have it folks, my first real post. I hope you enjoyed and will come back soon.

Work in Progress

If you are reading this I guess you've found me.  This is obviously a work in progress so please come back soon to see the blog really come to life.  Please leave a comment if you have any questions for me or discussion topics.