Schedule your Spendings
December 3, 2007
Monica Tates loves her two beautiful sons. She had saved enough to give them all the toys, clothes, sweets and treats they wanted. Unfortunately a couple of months ago she lost her job. So far she’s been unsuccessful at finding a new position, since competition is murderous. The whole family will have to adapt to the new situation. Here’s how they cope.
Her parents were never rich, big fortunes always landed in other people’s laps. “My parents did a great job preparing me for less wealthy times. I just need to do as they did when I was young,” Monica says.
So she invented a ‘spending schedule’. What her mom used to call a budget plan, is a spending schedule to her. It all seems to start with positive thinking when your bank account is in the negative.
As a single mother of two young kids, Monica never uses words like “budget” and “budget plan” whenever money is the subject of talk in her household.
“The word ‘budget’ gives me the feeling I am taking toys from my kids without their fighting over them,” she says. “So I started by looking at what I wanted to purchase, and drew up a plan on how creative I could be with the available means. It’s like cleaning up after a party: sometimes there’s such a mess in all the rooms that you simply don’t know where to begin. First you need to make some decisions: what is it that you need or want, where is it sold the cheapest, and how fast do you want it. You’re not being frugal. You’re just setting priorities.”
Maths, reading, writing, geography… all these subjects and more are taught at school because they form the basis of our general knowledge. And almost everyone recognizes it is important to keep on learning. Then why can’t we learn in school about things like setting up budget plans, managing the flow of money, methods of saving?
Most of us must learn how to control all the money that comes in and goes out, but there aren’t any courses for young adults. Families are a bit embarrassed to talk about their earnings, their fixed and other expenses, and especially about diving in the red before the month’s end. Being silent about those things is definitely not the best thing to do.
Get the picture. Everyone says it is best to start by writing down everything you spent money on, from hotdogs to parking meters, from groceries to newspapers. Just pick a month, and go ahead. At first it does require a lot of time, effort and involvement from all family members, but it’s an easy thing to do. Page number one is for all the money that comes in. Page two, meant for writing down all costs, should be divided into several categories. The most crucial of all categories is for fixed expenses (mortgage, car insurance, health insurance, personal loans etc.); variable expenses (from phone bills to what you’ve spent on groceries) is the next category, and random spendings (birthday gifts, DVD rentals etc.) should be put in category 3.
After comparing the results of pages 1 and 2, you have a clear picture of where things went ‘wrong’. You’re in for a surprise, to say the least.
“I realize this is easier said than done,” Tates says. “A lot of people just can’t find the time and energy to keep tracking everything they’re spending. The best spending schedules are useless if you don’t write everything down. Every 30 days I compare the real time situation to my spending schedule. Actually, I hate it. But it is important for me to track where my money has gone. It opened my eyes, and maybe it can make other families more conscious about money.”
“After keeping track of everything for a month, there are many people who admit they didn’t realize that they’d spend a lot of small cash on small things in that month,” says Monica.
“People even told me they felt some kind of stimulation to stop spending money on cigarettes, lottery tickets, takeaway meals, credit cards, online purchases and even stop shopping in the more expensive supermarkets. When they saw the large sum of money they’d spend, they suddenly realized they’d found an extra $150 a month they could use on more essential things. “
3 essential rules to stick to Tates always asks families to stick to three important rules — live life within their earnings, take appropriate measurements for the future and “enjoy life as much as you can”. The latter surely means one thing to one family, and another for others.
Today expenses differ from what families had to pay for 2 decades ago. Today most households have one or more computers, use the services of fast Internet providers, are the proud owners of several cars, pay for more TV channels, and have at least one cell phone. All this can easily add up to more than $300 of extra expenses a month.
There are a lot of tools on the Internet that can help families track their expenses and schedule their spendings for more important goals.
Posted by andry under Financial Planning |