When you keep a budget, you should know where your money is, where it went, what it’s being used for, and how much you have reserved for your personal use. The reason that many people don’t have money is that they don’t plan to have money. Really, that’s not a flippant statement. People who have money have made a plan to have money; meaning they’ve made a decision and a plan to not spend everything they make. If you want to have a hundred dollars in spending money in your pocket each month, each week, or every day, then make a financial goal to reserve the $100 for yourself and plan not to spend it on something else. Of course your cash flow has to be sufficient to support your goal. The sacrifice that you make to not spend money one place and direct it to another is such an entrenched idea among money managers that the idea has its own name: opportunity cost. If you want this, you may have to sacrifice, or do without that.
What if my cash flow doesn’t support my current lifestyle? Your budget will show you that situation if it exists, and you’ll have some decisions to make. The decisions in general are rather simple: expand the cash flow or reduce the expenses. Those are the large adjustment knobs on your money management machine. The fine tuning knobs on your cash flow machine might be more tricky to adjust to your liking.
At least the decisions to be made are your decisions and not the bank’s decision about your mortgage and whether you get to continue living in your house. It’s your decision about how much car to buy and not the bank’s decision on whether you get to keep it after having paid for it for 2 years. It’s your decision about how hard you work, how many jobs you have, what type of work you do, how much education you have, and whether you spend your money or invest it to make more. The work and effort to maintain and operate on a budget is much easier than paying interest on debts, paying penalties that return you nothing, and wasting money that you thought you had but really would have been more useful somewhere else. And the satisfaction you’ll feel over spending money that you know is yours on something that offers you enjoyment is a level of peace-of-mind that is priceless.
How much you pay in taxes, unfortunately, is a decision which is largely removed from your direct influence. Taxes and strategies to deal with them are a topic large enough for a separate article. As much as I despise politics, I’ve realized that when we as citizens don’t pay attention to what the politicians are doing, they help themselves to more and more of our money, often in direct contrast to our wishes.
Expand the cash flow: what can you do to add money to your cash flow? Got a chainsaw and know how to use it? Take tree trimming and tree removal jobs. Create a firewood service with the removed trees. Bake and decorate custom cakes for special occasions. Take a second job. Go back to school, change careers, and engineer yourself a raise. Open a business. Know how to do something useful? Write about it and help other people (I like that one). Use your imagination and think of what you can do that someone is willing to pay you for. I suggest you keep it legal to keep the cash flow flowing. Incarceration and fines tend to work against your positive cash flow!
Reduce the expenses: what are you spending money on that you may not have to, or may not have to at the level that you are currently? Of the two options, controlling the expenses is usually easier and more immediate than expanding the cash flow for most people. Take a critical look at your expenses that you pay each month. Can you reduce your phone bill by using a phone plan that includes your air time, internet access, and data transfer with unlimited access rather than one that charges you for overages after a certain point? Reverse that idea: can you use a pay as you go phone plan and use the services less to reduce your bill? Can you reduce the amount of electricity that your home consumes? Can you reduce the water that you use? Do you really need cable television or a satellite television service? Could you reduce debt and eliminate the interest you pay on debt service over time? Do you really need a six-dollar cup of coffee twice a day, six days a week? (That’s seventy-two bucks plus tax each week, two-hundred-eighty-four plus tax each month; just in case you were starting to count fingers and toes.) It adds up doesn’t it? What could you do with an extra $284 each month?
I’ve crafted a worksheet that you, or you and your spouse or family, can work through as a general guide to get you started on reconsidering your current expenses and prioritizing them so that you can lighten your monthly load. It’s chapter seven, one of four new chapters in the MoneySmart Personal Finance Solutions, 2nd Edition book; included to help people improve their financial situation and grow their wealth.
Those earlier suggestions are the easy ones! Are you ready for the serious considerations? Can you structure your finances so that you pay less in taxes? Can you heat and light a smaller home? Can you drive a more fuel efficient car? Can you drive a less expensive perhaps previously-owned car so that you can pay cash for it and eliminate the payments and interest. Can you quit smoking? Can you move to a new location so you can walk to work? Can you get a new job so that you and your spouse can both walk to work? Use your imagination and put it all on the table. Then sit and have a meeting of the family finance committee and see which of the options you are willing to undertake as a family. The results might be pleasantly surprising and literally rewarding.
So, why did the girl who posed our original question in Part 1 of this article feel guilty about spending her own money? I believe it was because she was spending money that she felt subconsciously should be committed to another purpose. Because she hadn’t likely planned where her money was going through making and maintaining a budget, she didn’t know that the money she was spending did not actually belong somewhere else. I think that she felt that inconsistency emotionally as guilt.
The extra effort and amount of time that it takes to run a budget on a monthly basis pays you back not only in peace of mind, but in real dollars that you’ll have earned by not wasting money on things that really didn’t matter to you. Remember the old adage, “a penny saved is a penny earned”? Working for a living can be a big enough challenge without beating ourselves up over spending the money we worked for on the things that we need and want. The financial understanding you’ll gain from the practice of maintaining a budget will literally pay you back over and over and over for the rest of your life.
That financial understanding is a skill set, and that skill set can be learned no matter your age, success level, or personal wealth. That skill set is taught to you in the MoneySmart book that I’ve mentioned throughout this article. It’s filled with even more practical ideas on how to better your financial situation and wealth accumulation. How much longer are you going to wait to stop feeling guilty and start accomplishing those goals rather than just dreaming about them?