Setting up
Spending Plans
The word 'budget' says
self-deprivation, the way I approach, I talk about creating a spending plan and
start from, 'What do I want to make room for?' Start with what you'd really like
to spend and how you can create that space. It's not about being frugal. It's
about saying, 'What's most important to me and how do I get there?' "
OK, so you can say budget, but think spending plan.
Just like eating right and exercise, just about everyone understands the value
of a spending plan or 'budget'. But unlike nutrition and exercise, most people
don't get an education in money management.
"Most people don't budget properly because they're not taught to," says Howard
Dvorkin, president of Consolidated Credit Counseling Services in Fort
Lauderdale, Fla. "There are no courses I know of, especially in the high school
level. A lot of families purposely don't talk about finances; I think that's
extremely detrimental."
Get on the right track
All the experts say that
the place to start is to track every expense, even snacks from vending machines
and change put in parking meters, for a month. The process itself is
time-consuming at the outset, but it's not difficult. On one chart, write down
all your income. On another, write down all your expenses, broken into
categories for fixed expenses like the house and car payments; flexible expenses
that vary each month, including the phone and electric bills; and discretionary
expenses, such as gifts and recreation
Compare the two lists, see where the gaps are, and adjust accordingly. Now, be
surprised at what you find.
"Obviously, this is theory and easier said than done," Dvorkin says. "Tracking
every nickel is a big process and a lot of people don't do it. You can make the
best budget, but if you don't track it, what good does it do? In my house, every
month, we compare the actual to the budget. It's not fun. My wife hates me for
it. But you have to track what you're spending."
But writing down where the money actually goes can be a major eye-opener for
many families.
"A lot of people say after they do the tracking, they didn't realize the little
piddly things really add up over the course of a month," says Barbara O'Neill, a
certified financial planner and family and consumer sciences educator at the
Rutgers Cooperative Extension Program.
"I've even had people tell me it was the impetus to quit doing something, like
smoking or playing the lottery. When they saw it was such a large amount, they
realized that could be the extra $100 a month they were looking for. They had
never thought of it as $100 a month, it was just a couple of bucks a day."
Rules one, two and three
I ask people to follow
three rules -- live within their means, take care of their future and "maximize
their pleasure," which could mean different things to different people.
"It might be sending your kids to college, buying a certain sports car or taking
a vacation," she says. "It doesn't have to be frivolous; it just has to be in
line with your values."
Families have different expenses today than in the past. Twenty years ago, most
households had one phone and long-distance phone calls were for special
occasions. Today, it's not uncommon for families to have two or more phone
lines, plus cellular phones and pagers. They might have a cable modem or DSL,
plus the cost of their Internet service. What used to be a $30 to $50 monthly
expense can easily run more than $200 today.
Computers, with software and peripherals such as printers, modems and scanners,
are another line-item that didn't even exist on our parents' household budget
sheets. The easy availability of credit and online shopping have made it easier
than ever to spend beyond our means.
Along with high-tech expenses have come some Internet-based resources.
Quicken, the money management software, offers a MyFinances section on its
Web site to track all your financial information. Most cooperative extension
programs offer family financial planning information; the Rutgers University
program has a
set of tools at its Web site to help families plan out their goals.
Mortgage Glossary1
