Simplifying the Budget

A while back ago, I worked with a couple where the wife was very detailed oriented and the husband was a little bit more carefree when it came to money. In working with them, she wanted to learn how to do a budget because they had always been flying on the seat of their pants when it came to paying the bills, living paycheck to paycheck. He wanted the least intrusive financial tools, so he would not need to sit down for hours at a time to fine tune their financial situation. She on the other hand felt that they needed more discipline and accountability.

We worked together to help them set up a budget which showed them that they had a lot of choices when it came to their money. They both found the experience to be very rewarding. Yet, then came the moment of truth of how they were going to be held responsible for the budget. They had separate checking accounts and the husband did not want to complications of joining them together (more time trying to get on the same page).

I explained there were many ways to track a budget from using a tracking tool like Quicken or Money to tracking to the amount saved each month. The husband jumped on the amount saved each month because it is the easiest (and what I personally use). For this method, you figure out who is paying what bills each month and based on their income, how much they should have saved at the end of each month. They would then get together at the end of each month and report back if they were on track or not and why. Thus, if he was responsible for $1,000 of the budget for the month and earned $1,500 after taxes, then he should have saved $500 for the month. If his checking account had $500 at the beginning and $600 at the end, there is a problem (he only saved $100) which he would need to account for. Yet, if he had $975 at the end ($475 saved), the $25 difference would probably not be that big of a deal especially if he saved $35 more the next month where it all evened out over time.

She could not quite get her hands around this because it sounded so willy-nilly where there was no hard cold number to track at the end of the month. From reading all the financial books, she thought they needed something to report back how much their gas, eating out, groceries, etc. were for the month. I told her that the key to budgeting was to gain awareness of their spending. It could happen in any of several different methods, the key is what is easy and acceptable for both of them.

So, she went out and bought Quicken to track their spending and took charge of it because she knew he would not spend the time to keep it current. She got him to agree to periodic ½ hour to 1 hour meetings to help her set it up. Well after about ½ year doing this, she reported back to me recently that she has taken a more laid back approach to budgeting.

She reported that she started to think about spending on a weekly/monthly basis where gas costs $__ a week and other items may cost $___ a month. When she went back to her credit cards, she found out that she usually was right on track with her budget. What she realized is that a budget is about their choices they have not about the choice they had in the past. When she spent time trying to fine tune the past, they both had less energy for future decisions. More of their conversations would be about what happened (to nail it down) versus what will happen.

She found out that once they decided how to spend their money, many more things went according to plan, especially as they became more aware of their budget and spending when it happened (versus tallying it up at the end). Now, when they go out to eat, they know they had budgeted $__ a week and know which restaurants and what items fit in that amount. And, if they decide to go to a fancier place one week to celebrate (e.g., their anniversary), they could choose to cut back the following week to stay on track.

She found out that most of their spending became more conscious with few surprises because they were focused on what bills/spending they were accountable for the month. Thus, when they went out shopping, they knew what they had budgeted and kept within it. They also had a repair fund to take care of things going wrong with their cars and appliances. Thus, they did not need to change their current spending to account for these surprises.

She saw that it was far more beneficial to keep tack of what the budget was so that they could adjust their spending during the month if something popped up. Their conversations around money became less frequent, thus he is more willing to sit down if an emergency comes up rather than thinking it is a dreaded money discussion where they would pour over all the details. She was grateful that finances became easier for them.

It was funny that this came up when it did because I had just written a chapter in my book on budgeting. In it, I emphasized that they key to a budget is in the present and future, not on the past. When we are more aware of our budget, we know when something comes up that needs to be accounted for (e.g., higher gas prices or increase in insurance rates). They key is the choices that are going to be made to account for these items. Yet, sometimes what happens is that people get caught up with what has happened in the past that they spend less time making their choices today and tomorrow. The husband became more willing to sit down for financial conversations when it was about special issues and not spending time rehashing the past. And, if insurance rates increase, the more time a couple has to review their options, the more likely they are to save by shopping around versus being forced to accept the higher rates because no one has the time to make the calls.

Morale: The more we focus on the choices we have (instead of had), the better off we will be financially.

If you use Quicken or other programs to track what has happened and it works for you, do not give it up because I said to simplify. Just make sure you are more focused on what choices you have today that will affect your tomorrow instead of being more focused on the past on the choices you had.

Some readers may ask, how do we know if our budget is really accurate if we do not track each item? I believe that we are more aware of our spending than we give ourselves credit for. We know that if we spend $300 on clothing a quarter, it is $1,200 a year. We know that if we spend $5 eating out 2 times a week that it is $520 a year. Now, is it important that we know that we spent $540 on eating out and $1,180 on clothing, if we saved the amount ($500 per month) we had planned to? Not in my book. It is more important to know that we have $10 to eat out a week and to choice to do so or not. It is more important going to the store that we come out with $300 or less in clothing (per the budget). And, if it was $400 in clothing, you would be truthful and report it to your spouse at the end of the month and discuss your choices for the next month to get back on track. By thinking of our purchases as we make them and how it relates to the budget is a form of tracking. More than not, we are aware month by month what we spent (with the exception of groceries if you went to an average of 3 stores per week). Even then, you would have a general ballpark estimate and if needed could put the receipts in a box to tally up at the end of the month for that category. Yet, I find even with my groceries that it is close to $100 a week ($50 for the weekly shopping and $100 every two weeks for the warehouse run).

My concern is that people rely on a program than mentally keeping tabs where they stand financially when shopping. Or, that they spend too much time on figuring out a program than using that time to make better decision for the future. We all wish we had more time during the day, thus the less time spent on the past leaves more time for the present and future.

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