Be a Money Manager
Traditional budgets are usually doomed from the start.
Mention the word budget, and a conversation can stop in its tracks. It can immediately put people on the defensive with comments such as “Nobody tells me what to do with my money”, “I’m not the one with the spending problem”, etc. So let’s assign ourselves a title instead, because it’s your money and that makes you the boss. You can be your own money manager, executive director of financial future, president of Jane & John Doe Financial, supervisor of personal finance, or wealth god.
Traditional budgets often require that you keep track of every single expenditure for a month or two, to see where the holes are in your spending. The problem with this approach is that this labor intensive first step is so prone to failure, it can forever set the stage for a negative attitude toward budgets. If you make it past this step, sticking to a rigid budget that leaves you feeling deprived and financially stressed out, further instils your hatred of budgets.
Some budgets are so demanding, you would have to have a serious case of financial OCD to follow them. To really scrutinize spending, you are expected to keep track of and categorize every expenditure, EVERY month. Food may have multiple categories including essential groceries, non-essential groceries, coffee, school lunches, eating out at work, on the weekends, etc, etc, etc! I wouldn’t last a week…
In order to be successful at managing your money, there needs to be a reason for doing so. It is because you want and value certain things in life that you are willing to give up spending money on something else.
Absolutely critical to financial success is to make a list of your goals and priorities. What you spend money on now will affect your financial health for the rest of your life. Is buying a house important to you? Do you have a solid company pension plan, or do you need to save more for retirement? Is getting out of debt important to you? Without financial goals, your money may end up being spent on a lot of consumer ‘traps’ that have no lasting value.
Bad Habit Makeover for Spenders
A comprehensive money makeover for someone that is on the path to financial destruction, often requires that person to give up a lifetime of bad spending habits. Similar to the dieter who has to give up all their favorite foods, breaking all those habits at once and going cold turkey, is a recipe for failure. We develop habits because a reward mechanism is activated in our brain, so giving them up is going to make us feel deprived. To make habit breaking easier, try to come up with an alternate reward that doesn’t cost as much. Taking small steps toward the the good habit also makes life easier. Below is a very small example of the possible steps you could take to get from bad to good.
Have some cheap fun with friends
- The $5 Dollar Challenge – whoever can purchase the most at a thrift store, garage sale, or flea market for $5 wins lunch or coffee paid for by friends. Donate any unwanted purchases back to thrift store.
Save $$ on Meals
• Taking lunch to work – Easy Lunchboxes
• Make ahead freezer meals – Southern Living
• Bulk cooking – Menus4Moms
Discretionary spending represents the choices you make in how to spend all money not earmarked for essential and necessary expenses. These choices include money you spend on internet, cable, eating out, gym memberships, books, clothing, children’s activities, gifts, some groceries, hobbies, sports and recreation, alcohol and tobacco, etc.
A fixed expense does not change in dollar value, remaining the same (or fixed) throughout the year, term, or contract. Examples of fixed expenses are mortgage, rent, or loan payments, monthly insurance premiums, and bank fees. There is not a lot of wiggle room in reducing fixed expenses.
Variable Expenses can vary greatly in amount from month to month, and also in the frequency of payment. Some of them you may only come across once every few months or even just once per year. Examples would be groceries, clothing and personal items, vehicle expense, entertainment, hobbies & sports, travel, yearly payments on some insurance policies, childcare, vet bills, etc…
Wants vs Needs
Needs include only the very basics in the following: clothing, food, shelter, medical costs, heat, electricity, water, and sensible transportation when required. Wants are all the other things you would like to have. Despite thinking you ‘can’t live without your cell phone’, the fact is, you can. Eating out, movies, all electronics, snacks, alcohol, tobacco, expensive grocery products, convenience foods and products, gym memberships, books, new furniture, new clothing, jewellery, etc. You may want steak and lobster, but all you really need is a peanut butter sandwich…
It is easy to point the finger at self-indulgence, lack of willpower, or financial ignorance, but is that all it is? There are so many forces working against the average consumer, telling someone their “spending is out of control” may be more accurately stated as being “out of their control”.
‘Broke By Coffee’ Was Never About The Coffee
There have been several articles and blog posts lately attacking the ‘Starbucks makes you broke’, and other ‘give up coffee and save money’ advice. There are those that like to debunk anything that appears to pass judgement on any of their habits or indulgences, and then there are those that have simply missed the big picture. ‘Broke by coffee’ was never about the coffee.
It is, and always has been, about priorities.