Budgets- The Truth about Budgets
Want to know the truth about budgets? Truth about budgets is that most people can’t follow one. Is that you?
Do you constantly find yourself not following your budget, or worse yet, you haven’t created one yet because you’re scared of it? Why is that? We know why.
Nearly everything we’ve been taught about a budget makes it seem as though it’s a restrictive mechanism that tells us how to spend our money and takes away our freedom. When you hear the word budget how does it make you feel? Do you feel like something other than you is controlling your money? Here’s an Ah Ha moment for you. By definition, the term budget means “a way to pay for planned expenditures or purchases”. Did you catch that? You decide what you want and then you figure out how to pay for it. That doesn’t mean you just buy it and hope you can pay for it. It means that you want it, you create a plan for owning it, then you buy it. That’s a true budget. If you want to buy more stuff and do more things, you have to create the money to pay for it. It’s that simple. Here’s another truth about budgets. Most budget programs or systems don’t work with the way we spend money today. They are designed to track money in way that we at Debt Free Project International term as old fashioned. It’s because budgets as we know them were designed when we operated mostly on a cash or check basis. Today’s consumers spend using a variety of methods which include, but are not limited to: debit cards; credit cards; electronic funds transfers; auto bill-pay; ACH withdrawals; and of course, cash and checks, though much more limited. Because of this, we interact much less with our money (it’s just a swipe of a card or the press of a button on your computer). These spending capabilities also increase the speed at which we live, which means that it is much more difficult to track our spending. This is another reason budgeting doesn’t work for the majority of American consumers.
One of the budgeting systems that was used for years was called the envelope system. Here’s how it worked. It’s Friday and you just got paid so you go to the bank and cash your paycheck. You then take that cash and you divide it into different envelopes. Each envelope has the name of a budget item (house, car, insurance, groceries, taxes, entertainment, etc.) During the month, you spend the cash out of the envelope. When the money in each envelope was gone, you stopped spending on that category. If you overspent in one category, you had to make a conscious choice of which other envelope to you were going to take that cash from.
Why doesn’t that system work today? If we compare it with how our money flows today, we see some stark differences. It’s Friday and you just got paid. Your check is auto-deposited by our employer (or maybe you still get a physical check which is deposited into your checking or savings account). Then, you pay your bills using the plethora of payment methods described above. Because life is so busy and moves so fast, you don’t really track your daily spending so you don’t really know how much you have left in your account until you check your balances. You can’t divide the money into categories because the bank is holding your money waiting for you to spend it. Eventually, all of our money is gone for the month. Instead of stopping your spending, you continue to spend by using one of your many credit cards. Then when the statements come, you’re surprised at how much you overspent. It’s a nasty repeating cycle that is costing consumers a fortune.
At dfpi we want you to take control of your finances immediately. There are several products available today which will help you understand how you spend and more importantly how much you spend. Again, if you want to spend more, that’s fine, just earn more. However, you still need to track your spending and understand how it will impact your budget and your long term goals. Here are a few tools that are designed to help you understand your budget.
MoneyMerge AccountTM System – Although the Money Merge Account program is normally touted debt elimination or mortgage acceleration product, the newest version is also an outstanding budgeting tool. You can use the Money Merge Account system to maximize the power of every dollar by harnessing its technology to minimize the interest you pay (allowing for more money to stay in your pocket), track your spending through “money folders” and pay bills using the unique “text bill pay function”. The founders of UFirst, the company that makes the Money Merge Account product, were recently recognized by Ernst and Young as Entrepreneur of the Year for Utah Region in the Financial Services sector. This product will revolutionize how consumers think about and spend money. You should definitely research whether or not it might be good for you.
Mvelopes Personal – This product uses the old envelopes style budgeting method but does it using on-line technology. It will help you track your spending from each folder and help you manage your budget better.
Quicken Online – Quicken made a name for itself by helping people track expenses. Now they’ve moved on-line to help people manage all of their finances in one place. Free 60 day trial to see if it’s for you.
Mint - Mint is a on-line money management program that is advertiser based. Caution in using a service like this. Understand that your information and buying preferences will we shared with the advertisers who fund the site.
Contact us- Need help working with your budget. Contact us. We’ll spend 20-30 minutes at no charge helping you understand how to create your budget. We’ll show you the Money Minding Makeover Revolving 12 Steps to Financial Independence, which include how to create and maintain your budget and how to think about money so it creates an attitude of empowerment.
