Budget. Most people get a foul taste in their mouth just hearing the word. So it’s no surprise that only 32% of Americans use a written household budget, according to Gallup. But to savvy financial planners like PJ Gunter, an Accredited Financial Counselor based in Houston, that’s a colossal mistake. Budgeting is an essential skill for everyone, but especially for anyone struggling to finance a life change.
“I like to use the words spending plan, because people automatically interpret the word budget as restrictive, but it’s really just the opposite—it’s liberating,” Gunter says. “It lets you see how much you have, and how you can spend it differently to accomplish what you want.”
So what scares people off? “It’s very emotional,” she says, “and people get such anxiety that they just don’t have enough. There’s a sense of scarcity. But once you dig into the numbers, the reverse happens, and you can even get a sense of gratitude to realize how much money you do have. A spending plan helps you realize where you’re spending on things that aren’t really that important, and how you could instead put that money into what you truly value.”
But be realistic. If you have been budget-averse for decades, don’t expend to change overnight. Take these four small steps to expose your spending blind spots—including dining out, gifts, and money to kids—and channel funds toward the life-changing spending you long for, whether it’s tuition to go back to school, a dream trip or a new business. “The idea isn’t to restrict your spending,” she says. “It’s to redirect it.”
Pledge Just 10 Minutes a Day Log on to your bank account and start scrolling through your expenses. “Even if you just look at it for 10 minutes a day, you’ve made a beginning,” she says. “And you can shake that feeling that you’ve been sticking your head in the sand. When people realize they are paying, let’s say, $70 a month in interest on purchases they can’t even recall, they’re able to get more focused about reducing credit card debt.”
Don’t Go It Alone: Free programs like Mint and LearnVest make it easy to combine accounts, and track how much you spend on everything from gasoline and insurance to lattes and dog-grooming. Gunter swears by Judy Lawrence’s The Budget Kit, a perennial top-seller on Amazon, or her other resources at moneytracker.com.
Take an Annual Snapshot While the minutiae of monthly budgets can bog people down, Gunter says some find it easier to pull back and write down a macro view of the family finances. The big picture exposes expenses that throw people who are just settling into monthly budgets, like annual property tax bills, quarterly car insurance payments, or twice-yearly tuition payments. Going big serves two purposes. “First, when we look at the macro issues, the micros often take care of themselves.” Plus, it can be affirming to see that that no, you are not frittering all your money away at Whole Foods and Starbucks, even if it feels that way sometimes. “When you look at how much you spend in a given year on housing, transportation and retirement, you might think, `I’m more on track than I thought.’”
Ditch the old guidelines Almost everyone has heard that you should have six months living expenses in the bank for rainy days, or that no one can retire on less than $1 million. “If you have very little savings, that is extremely unhelpful advice,” Gunter observes, “and it can be so discouraging.” Instead, just save something, and make sure to pat yourself on the back about it, even if it’s just $100. (You’re in good company, by the way: The Brookings Institute estimates that 25 million American middle-class families essentially live from paycheck to paycheck.)
Whatever change you choose, just make a beginning, to better face life’s curve balls. Gunter speaks from experience, including a comeback from colon cancer. “Nobody expects to have cancer,” she says. “But things happen. And until we learn to have a fundamental way of handling our money, we’ll never have the financial freedom to live the way we want to.”
Photo Credit: Tim Platt/Getty