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If you’re still of the opinion that a budget is the equivalent of cement shoes, then it’s time for a shift in attitude. Part of why you can’t use a budget successfully may be because you are taking the wrong approach. If you look at a budget as a constraint, you’ll always feel squeezed. A budget should not be viewed as a stop sign for spending. Nope. It doesn’t tell you what you can’t do. Think of it as telling you what you CAN do. It’s your plan for how you will spend your money on the things that matter to you the most.
Sometimes people’s cash flow is out of alignment because of how often they are paid. Sometimes it’s because of when their bills hit their bank accounts for auto payment. Mostly it’s because people don’t take the time to sit down and plan when the money goes out based on when it comes in.
People seem to think that the process of making a budget differs depending on who you are: self-employed, contract worker, part-time worker, salary grunt, small business owner. Hey, the point of a budget to figure out how much money is coming in and how you’re going to send it out again so you don’t end up in the red. How much you make is irrelevant to the budgeting process itself. Sure, how much you make dictates how much of a great life you can have, but it has very little to do with the budget, which is just a plan for how you’ll spend what you do make.
People are always willing to volunteer their wisdom about budgets to me. I’m a Budget-Discussion-Magnet it seems. And nine times out of ten, people want to tell me why budgets don’t work. I agree. Most people’s budgets don’t work for a few basic reasons. Here’s my Top 5 List.
Y’all have heard me say, propound, shout, that you need an emergency fund. There’s nothing worse than having worked hard to create a stable financial life only to have the whole thing toppled by an unforeseen whatever.
People seem to have difficulty figuring out where the money for the jars comes from. It’s as if they think this is “extra” money, not money they would have been spending all along. See this question for how to make your own Budget Binder.
People are always claiming to be serious about becoming debt free, and then out they go and drop $3 on a coffee, $30 on a book, $60 on a new pair of shoes. The little things we spend money on may improve our lives for the time it takes to consume them, but they do nothing for our long-term goals. If you’re serious about becoming debt free, you can do it. But you have to have a plan.
People are always writing to ask what the impact will be on their credit history if they cancel their cards or reduce their limits. I’m not surprised that people don’t know what to do because so much MISinformation is available.
I’ve always thought of my money in piles, separate and distinct, with a purpose or a place. Maybe it’s because I’ve been self-employed forever and run my own small biz. The money that comes into the business is the business’s money, and doesn’t become mine until the business has paid me. The money that I put in the house account to pay the bills isn’t for buying stuff… it’s for keeping the home fires burning. And my emergency fund… well, that’s for emergencies of course.
No topic has as much confusion attached to it than the issue of going to, and paying for, post-secondary education. If you want to be one of the dopes who graduates from university or college with a heap of debt and no clear direction, hey, who am I to try and stop you. It’s your right to be as big a dope as you want. If you’ve decided that option sucks and you’re committed to doing it differently, read this.
Home ownership is The Big Dream for many people. But home ownership is a big financial commitment. Here’s a blog with links to many of the things you must think about.
This blog contains a series of articles to help people who are getting married to think about their money, their lives together, and how to plan for both.