[ad_1]
First by Jeff Yeager in his latest book “The Cheapskate Next Door,” then financial journalist Liz Weston. Now it’s my turn to come out of the closet, so to speak, as a financial professional who doesn’t “budget,” at least not in the traditional way. Do not get me wrong! As many of my clients can attest to, I don’t dispute the value of tracking expenses for one minute. In fact, I believe that spending wisely The most powerful tool in everyone’s financial planning toolkit.
Still, whether you call it the “B” word, expense planning, cash flow management, or [insert euphemism here], I agree with many of my clients who scrunch up their noses and back away, intimidated by the prospect of tracking expenses at a granular level. The thought of spending so much time on a small number – maybe a few reds – is intriguing enough to many that it simply isn’t accomplished, no matter how great the potential reward.
And therein lies the problem as well as the solution. As a wise woman once said: “There is no single, right way to organize anything, whether it’s your stuff, your space, or your time”…or in this case, your living space. Expenses of OK, so the “wise lady” is my friend Sue West, a Certified Organizing Coach®, and she had to say that, no matter what you’re trying to organize, you need someone else’s idea of the right system. Is not needed. Rather, you need a system that works You, Otherwise, you’re not likely to retain it, you won’t end up with any more useful information than before, and all the bells and whistles involved will be wasted.
According to Sue, there are 3 key elements to designing a system that works for you: People, process, and product, When it comes to tracking expenses, these include:
- Your Style — Are you detail-oriented, or a “big picture” person? Are you an early adopter or someone who prefers the “tried and true”? Are you a road warrior or more of a homebody?
- Your Money Personality — Savers by nature don’t need to monitor expenses as closely as spenders.
- Your goals — If you’ve already financed most or all of your goals and have a solid cash cushion, you don’t need to delve as deep into your cash flow statement as someone paying off old debt. Buy a new home while moving, changing careers, and saving for kids’ college and retirement.
- Time constraints – If you’re training for an Ironman triathlon, working a full-time job and raising three kids while studying for a master’s degree in physics, chances are a full-blown “traditional” budgeting process is beyond your reach. may not work for If your schedule is a little less booked and you prefer to do this kind of work, a more detailed solution might make sense.
Whatever your situation, there is a system that is right for you, and the factors described combine to point you toward exactly the right combination of process and product. I’ve seen people who do an incredible job of making the most of their money using a pencil and graph paper, calculator optional. On the other end of the spectrum, the more mobile and tech-savvy among us may need a fully automated, portable solution, such as Mint.com and its handheld app.
As for the amount of time I already spend at the computer analyzing small numbers in tables, as for me, I’ve chosen the simplest, least time-consuming path, which I call “reverse budgeting.” Basically, it involves taking a decision once a year about the target expenditure for the coming year, after reviewing the expenditure of the previous year. After checking the funding status of savings levels versus goals, how much is left to spend, well, on living per month? Once a month, this amount is transferred to an account whose sole purpose is to cover living expenses. If that account falls below its predetermined acceptable level, it is a warning sign that something is not going according to plan. Expenses may be high, budget may be less. Either way, it’s time to dig into the details, find out what’s going on, and change course if necessary while there’s still plenty of time to keep the overall financial plan on track.
And that, not spending hours entering, categorizing, and analyzing data, is really the point of this whole exercise: Keeping up with the difference between what comes in the door and living expenses is so big that it’s not worth it in the long run. Running goals are not met by the wayside. When you find the system that allows you to do this without cramping your style, you’ll have found your way to “B”.
[ad_2]