First Jeff Yeager in his latest book “The Cheapskate Next Door,” then financial journalist Liz Weston. Now it’s my turn to come out of the closet, so to speak, as a financial professional who doesn’t “keep a budget,” at least not in the traditional way. Do not misunderstand! As many of my clients can attest, I do not dispute for a minute the value of the follow-up charges. In fact, I am convinced that spending well tea the most powerful tool in everyone’s financial planning toolkit.
However, whether you call it the “B” word, a spending plan, cash flow management, or [insert euphemism here]I tend to agree with many of my clients who wrinkle their noses in horror and recoil at the prospect of tracking expenses at a detailed level. The very idea of spending so much time looking at small numbers, perhaps something in the red, is unpleasant enough for many that it just doesn’t come off, no matter how great the potential payoff.
And therein lies the problem, as well as the solution. As one wise woman said: “There is no one correct way to organize anything, be it your things, your space or your time” … or in this case, your living expenses. Okay, so the “wise woman” is my friend Sue West, a Certified Organizing Trainer®, and her point was that no matter what you’re trying to organize, you don’t need someone else’s idea of the perfect system. . Rather, you need a system that works to you. Otherwise, you’re not likely to keep it, you won’t end up with more useful information than you had before, and all the bells and whistles it presents will go to waste.
According to Sue’s account, there are 3 key elements to designing a system that works for you: people, process and product. When it comes to tracking expenses, these include:
- Your style – Are you a detail-oriented person or are you the kind of person who has a big picture? Are you an early adopter or someone who prefers the “tried and true”? Are you a road warrior or more of a homebody?
- Your Money Personality: Those who are naturally savers may not need to monitor spending as closely as those who tend to spend.
- Your Goals – If you’ve already funded most or all of your goals and have a solid cash cushion, you may not need to dig as deep into your cash flow statement as someone trying to pay off previous debt, change careers, and at the same time. buy a new home and save for college and your children’s retirement.
- Time Restrictions: If you’re training for an Ironman triathlon while pursuing a physics master’s degree, working full-time, and raising triplets, a full “traditional” budgeting process may not work for you. If your schedule is a little less oversold and you love doing these kinds of things, a more detailed solution may make sense.
Whatever your situation, there is a system that is right for you, and the factors outlined combine to tell you the right combination of process and product. I’ve seen people do an amazing job of making the most of their money by writing down daily expenses with a pencil and graph paper, optional calculator. At the other end of the spectrum, the more mobile and tech-savvy among us may need a fully automated portable solution, like Mint.com and its portable app.
As for me, with all the time I already spend at the computer analyzing small numbers in tables, I have opted for the simpler and less time consuming route, something I call “reverse budgeting.” Basically, this involves making a decision once a year, after reviewing last year’s spending, about your target spending for the next year. After verifying the savings levels vs. Goals funding status, how much is left to spend, well, in life per month? Once a month, this amount is transferred to an account whose sole purpose is to cover living expenses. If that account falls below its predefined acceptable level, it is a red flag that something is not going according to plan. It could be overspending, it could be insufficient budget. Either way, it’s time to dig into the details, find out what’s going on and, if necessary, change course while there is still enough time to keep the overall financial plan in motion.
And that, not spending hours entering, categorizing and analyzing data, is really the goal of this entire exercise: to keep the gap between what goes in through the door and what goes out for living expenses large enough that the goals to be achieved. long term do not fall. by the way. When you find the system that allows you to do that without restricting your style, you have found your way to “B”.
