Go to any competent financial planner, and one of the first things we do, very early in the process of taking on a client, is create a cash-flow statement. This sounds tougher than it is. Most families can take the last three typical months of their checking account statements (excluding December, which is usually not typical) and start assigning categories to every expenditure. Debit cards usually make this pretty easy. The goal: Analyze how much is coming in versus how much is going out, and what you’re spending it on.
With modern budgeting tools like Mint.com, this can go pretty quickly. But too often, couples are surprised at what they see. All those dinners out, all those four-dollar coffee drinks, that gas for those impromptu long drives to visit friends out of town – they all add up.
If you’re surprised at what you spend – or you think you might be, but you’re afraid to look, you might need to create a spending plan.
Yes, I said “spending plan.” Not budget. The word “budget” is a downer. It feels oppressive. Like it’s something that controls you. But here’s the thing: It’s your money! You control it, always. Until you run out of it, that is!
So since you control your money – and not the other way around – I use the term “spending plan,” rather than “budget.”
In our role as financial planners, we are sometimes called to counsel married couples – and sometimes adult children and their elderly parents – about identifying problem areas and suggesting ways to address them. Naturally, this is a very delicate process. Over time, though, we’ve identified a few ways to make it less painful – and maximize our clients’ chances of achieving their goals.
1.) Get both spouses to buy in, right away. If one spouse is in charge of the spending plan, and the other is just along for the ride, sooner or later, the plan busts. A spending plan should include input, sacrifices and compromises from both parties.
2.) Build in the occasional splurge. Whatever you both enjoy, or the family enjoys, that’s within reason, that lets you relax. Make the splurge part of the spending plan, and not something that blows it up. We haven’t seen any androids in the office lately. Every single one of our clients is human. The splurges will happen whether you plan for them or not. So plan for them!
3.) Focus on a goal. Not everyone fills a piggy bank just for the sheer joy of watching a pile of money grow. Most people need to save for goals. These goals should be mutually agreed upon. Some spouses don’t have identical goals. That’s fine. Set two smaller ones. One for each of you. Then have each spouse responsible for meeting the financial goals of the other. (See how that works?
4.) Reward yourself. Give yourself an occasional treat for meeting your interim savings goals, or milestones. For example, treat your family to a nice dinner at a favorite place for each $500 you can add to a savings account.
5.) Get the kids involved. Sure, they don’t need to know all the gory details. But you might consider saying “kids, we need your help saving money, and if you help us achieve our goals, I’ll take you to Chuck E. Cheese’s, or the beach, or whatever reward is appropriate in your situation, once the number on the refrigerator door that is the amount we’ve saved up reaches this figure! Be sure to keep your early promises. Then watch them light a fire under you to achieve your longer-term goals, too. There is power in getting the whole family on board!
6.) Are you both tech-savvy? Then you might use one of the many online budgeting tools like Budget Tracker and Mint.com to help you keep track of your expenses. Some people like to make their own spreadsheets and that’s fine, too. If one of you isn’t so inclined to computers, then an old-fashioned paper or something like Dave Ramsey’s grandmother’s favorite envelope system usually works better. (Worried about cash theft or loss? Use a debit card for transactions, and move Monopoly money around in your envelopes!) (Some people don’t care for the envelope system, though.) Each family is different. It’s not important what system you use. What’s more important is that you pick some kind of system and stick with it, together.
7.) Remember – the spending plan doesn’t have to be perfect. Don’t worry about tracking everything down to the ant’s eyelash. It’s better for it to be practical than perfect. Thousands of “perfect plans” wind up in binders gathering dust. A good plan that fits in your wallet or sticks in your head is better than a perfect plan in a slick, attractive binder on a shelf that everyone ignores!
That said, working through a family’s cash flow statement, and analysis is one of the most fruitful and rewarding services we provide – and one where we frequently add the most value. Why? Because it is so closely tied to the individual family, and so vital to whether a family will be able to attain its financial goals.
If you think you and your family would benefit from a close look at your monthly cash flows, or if you know you really need to get a handle on them, give us a call and make an introductory appointment. I know we have some tools and insights that you’ll find valuable.
If you’re really scraping the bottom right now – and we know there’s a lot of that going on these days – you might want to try your local Consumer Credit Counseling Center. You can also reach them by calling (800)769-3571, ext. 1910. Counselors are available to assist you Monday through Thursday from 9:00am to 11:30pm, Friday from 9:00am to 8:00pm, and Saturday from 10:00am to 6:00pm (Eastern Time). ACCC also offers a free budget evaluation form that allows you to complete the evaluation at your own pace, before speaking directly with a counselor. These people do great work for the people who need it most.