Mindy Crary,
I hate budgets. For years, I resisted anything that felt like tedious, methodical money tracking. Sure, I made okay money decisions about how much to spend on rent, and I was saving into my 401(k) at work and I was debt free, but beyond that, I was clueless about where my hard-earned money was going.
Then I became a financial planner. It might be surprising to learn that many financial planners have NO CLUE about budgeting?and when you're compensated to manage people's assets and sell products, cash flow is important, but entirely secondary to getting the sale.
So I started paying attention to my higher net worth clients. I realized they were all doing some kind of budgeting. Sure, some of them were making truckloads of money, but they knew exactly where it was all going.
I also noticed that the people who were struggling, or who were trying to figure out how to pay for the things that they wanted, like vacations, remodels and other big ticket items generally had no idea where their money went. It actually didn't matter how much or how little their incomes were, I started to see that lack of budgeting created an ambiguity in their entire financial situation.
So I embarked on my first budgeting efforts?and believe me, it was difficult! At first I tried just recording my purchases, the way I had seen my mother do; unfortunately, I flaked out on it pretty quickly. I thought I needed something a little more structured, so I looked at software. Quicken or Microsoft Money were the only budgeting software options at that time, and one of my clients recommend Quicken, so off I went.
Budgeting Challenges
There are 2 kinds of people: people who LOVE Quicken and people who HATE Quicken. I can't tell you how many times I started Quicken, only to flake out again. I felt like I was spending so much time downloading and categorizing purchases that I never actually got to understand the big picture of understanding where my money went.
Finally, at the end of 2007, Aaron Patzer invented Mint and my life was changed forever. Since I had finally found a system that worked for me, I was able to better help others too. I no longer had to say, "I use Quicken, but I hate it, so good luck . . . " because I finally had a process I believed in.
Tracking your spending effectively is a HUGE hurdle, but by no means the end of the budgeting journey. I realized that even though I was getting clearer about my spending behaviors, it was still an ongoing challenge to understand the "why" behind some of the spending decisions I made.
And when I work with clients, I arrived at some fundamental truths about the limitations I experienced when trying to help others with their own personal budgets:
Budgeting is a lifestyle choice. Budgeting is the area of financial planning that takes the most home practice; I can tell someone exactly what to do with their IRA, but then it's done and we don't really have to worry about daily or even monthly decisions around that investment. With spending, it's an ongoing challenge, like eating healthy.
Budgets are highly subjective. Two people earning the exact same amount of money will have drastically different ways of spending it. Imagine the single guy who makes $150,000 per year working at Amazon, versus the married guy with 2 kids who makes $150,000 per year working at Amazon; although the cash inflows are the same, that is where the similarities in their situations end!
Budgets are highly personal. I may suggest to one person they cut back on eating out and they're fine with it, while I make that same suggestion to another person and they go postal on me.
Budgets are driven from within. Budgets are what separate the financially successful from the financially mediocre. Bottom line, the way you become financially successful is to spend less than you earn. That's it. I can't force anyone to make that choice.
Only YOU know how to create a Budget that satisfies you. I can tell you what is common in terms of spending in different categories, but that doesn't necessarily mean that standard will work in your own life, or even make you happy.
Every individual is the authority on their own spending, but it takes work to maintain awareness and change habits. So the issue becomes not one of tracking expenses, but UNDERSTANDING how your money interacts with your emotions, moods, values and priorities. If you don't yet know, then that is the single-best step you can take to improve your entire money picture!
ACTIONS TO TAKE:
Find expense tracking software you like to use (here are some of my reviews)
Schedule time weekly to review your spending habits
Identify how your money interacts with your priorities (more help on that here)
Mindy Crary (MBA, CFP® practitioner and financial coach at Creative Money) helps you become a lot more educated (never inundated) about not just your money ? but the whackjob behind it. Check out Creative Money and sign up for more valuable money tips.
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