The Big, Bad Budget

There are 2 well-known facts about budgeting:
1. Everyone knows you SHOULD budget.
2. Most people don't have a budget or don't use their budget.

What?

Let's take a look at how we can make budgeting easier, and thus more likely to be applied to your personal finance.

First, we have to believe we need a budget. Without buy-in (from you and your spouse, if applicable) you will not ACT. Budgets are a way of understanding where your money is going. If you don't tell your money where to go, it will find a place and be gone. Budgeting allows you to control the flow of your funds so you CAN do things you want, freeing you to DO things. I once overheard a couple arguing about money and the one party said, "But I make a lot of money! Where is it going?" Ah, we all feel like that, don't we?  Well, a budget lets you know where its going so you can redirect it to where you want it to go.

Now, people hate budgets the way they hate diets. They see it as a way for others to take away all the fun. However, the glory of budgeting is that you choose the amounts you budget to your activities!  For example, if you want to spend $1000/month on clothing, that's fine...as long as you budget for it. If you tend to spend on technology, that's fine...as long as its accounted for. The place people get themselves in trouble is that they don't like how the numbers look on paper, so they change the paper but don't change themselves.

For example, in my experience in the work place, most people eat out for lunch.  So let's assume they spend an average of $10 per work day (average 22 work days/month, amounts vary depending on what you like to eat and where you live) that's $220/month, $440 if both you and your spouse are eating out for lunch. Now add your dinners to that to make up your "Restaurant" budget. What are we talking, $750-$1000? Well, gee. That's a lot of money. Where I live, that's as much and more than people are paying for rent!  And that's not including your grocery money. No one wants to admit they spend that much on fast food!  So what do we do?  We get out our eraser and change it to what we think it should be. Now we have a $150 budget (or whatever you chose) but you haven't CHANGED YOUR BEHAVIOR.  Well, that's one budget that's going to be blown out of the water every month. And you will feel guilty every time you eat out or look at the budget. And you won't budget anymore. Wouldn't it be better to just admit where you are spending your money and then CHANGE YOUR BEHAVIOR to be able to meet your goals?  In this example, what if they decided to brown bag their lunch 2-3 days a week and eat out 1-2 times a week?

When first starting your budget, I recommend going through what you spent last month and budgeting this month the way you spent last month, then working with your spouse from there. Why?  Because these are realistic numbers. They are what other people say you should spend, they are true to your current behaviors. Then you can look at what your goals are from there.

Another problem people run into when budgeting is in the verbage. You must be very careful that the conversation you have with yourself or your partner is not accusatory. If you start off this conversation telling them that we need to do a budget because they are out of control, you are not going to go anywhere. Use the infamous "I" not "you". "I'm worried about our finances. I think we need to do a budget, but I want to do it together. Will you look at it with me?" Dave Ramsey says in most every couple there's a nerd and a free spirit. The nerd likes to do budgeting and numbers and the free spirit thinks its boring. Appeal to your spouses strengths to get success. Are they a visual person? Use Monopoly money and envelopes for each budget. Are they a techie?  Show them the budgeting tools on Mint.com. Do they love math and numbers?  Bring out a pencil, paper and calculator!

How you do it is your deal, but every financial person is going to recommend it. Stop avoiding it and find a way to enjoy it. Do it together and stick to it. Make it realistic or it won't happen. Remember budgeting is a continuous process and not a once in a lifetime experience. Good luck!