Make 2019 the year you finally balance the books
Budgets: So great in theory, so utterly impossible (for the vast majority of us) in practice.
We've all been there—great intentions of saving loads, cutting lots and living within our means—while paying off all our debt, of course. You get out the calculator, draw up the spreadsheet (or more realistically, probably download an app) and then a week later, you've blown through all of your newly rationed coins, and there's still three weeks left in the month. You give up, tell yourself you're just bad at money, buy something to make yourself feel better...and so begins the cycle again.
To help us break that toxic circle of budgeting/busting/budgeting, we called upon Shannon Lee Simmons. Not only is she a financial coach and the founder of the New School of Finance, she's also the author of two books: Worry Free Money and the forthcoming Living Debt Free. She's known for her down-to-earth, real-world approach to mastering your finances. If anyone can teach us to stick to a budget, it's her.
Why is sticking to a budget so hard in the first place? On paper, it seems so straightforward.
Life is unpredictable. It's impossible to know exactly what you need to spend next week on things like groceries or gas or even coffee. Life changes week to week. Our spending money needs to be flexible to accommodate this. Overly rigid budgets don't work because they aren't realistic for daily life. It sets us up to fail.
Can we re-think the word budget somehow? For many, it automatically equals restriction, no fun, and ultimately, failure.
Yes! I prefer the term Hard Limit. It's the line in the sand that separates the money you can and cannot spend each pay period. Know your limit, spend within it! That's the only “budget” you need.
Are some personalities just naturally better at budgeting? What can you do if you're the person who only wants something when they're told they can't have it?
I definitely think some people gravitate towards budgeting more. Overall though, I think everyone is capable of being financially savvy and excited about that as long as they have a cash flow strategy that works for them and they feel the plan reflects what important to them. That's where the motivation comes in instead of the rebellion.
What's the number one error you see when your clients start to draw up a budget?
Over categorizing their spending money and inevitably failing. Or, unrealistic savings or debt repayment plans. They set themselves up to fail before they even begin.
If you want to reign in your spending and make a livable, realistic budget, where should you begin?
Calculate your fixed expenses. These are bills you must pay no matter what. Mortgage, utilities, rent, phone, daycare etc. They don't fluctuate and they are repetitive. If these are more than 55% of take-home pay, life will feel financially squeezed. I would start there and see if there's anywhere to reduce.
How do you sustain living on a budget?
Short-term savings. I call it my “slush” account. Put a little bit of money aside each month into a non-invested, liquid savings account that will help you stay on track when spikes in spending occur. This is the number one way to get and keep yourself out of debt.
How do you stick to a budget if one half of a couple is constantly not adhering to it?
It may be time to sit down with an unbiased third party to hammer it out. It usually means both partners aren't equally motivated and aren't on the same page with financial goals. A third party can help to get over one rowing the boat together.