Q. We have a difficult time living within our means and need some help with budgeting. We’ve contacted some financial planners but they either want to sell us commission products like insurance, annuities or mutual funds or they just aren’t interested in this type of planning even if we are willing to pay them an hourly fee. We’ve developed budgets and stuck to them for a few months but then we get sidetracked and truthfully just bored with the whole idea of having to be on a budget the rest of our lives. Once we get to that point we blow our budget and begin overspending again. In the past we’ve even rewarded ourselves for sticking to a budget for a few months and then going into debt by spending money on a vacation.
A. If you develop good spending and saving habits it is very possible that you won’t need to “be on a budget” for the rest of your lives. The reward will be knowing that you are in control of your finances and on track to achieve your financial goals. Once you go on that first vacation knowing that you’ve saved for it and aren’t going in debt I’ll bet you have a better time than any past vacation, regardless of your destination.
The National Foundation for Consumer Credit Counseling (800-388-2227) is a non-profit organization offering many helpful tools on their web site. They also have counselors that will work with you for a nominal fee and depending on where you live there may be an actual office you can visit. America Saves is another good resource for information on budgeting and saving. The Garrett Planning Network and the National Association of Personal Financial Advisors are good sources for locating a fee-only advisor that offers advice on an hourly basis.
Most budgets focus on monthly amounts to save and spend. These amounts are typically broken into two main categories, fixed and variable. Fixed expenses are costs over which you have no or little control such as rent/mortgage, taxes, home/car insurance, etc.. Variable expenses are discretionary and include, eating out, entertainment, clothing etc.. Additional costs will include long and short-term financial goals. The vacation, a new coat, new furniture would be examples of short-term goals. Retirement and education savings would be examples of long-term goals.
I recently spoke with Canadian author, Jason R. Hastie. He is a Chartered Professional Accountant which in the United States would be a Certified Public Accountant. His newly released book “The Dollar Code” takes a slightly different twist on budgeting. He compares budgeting to dieting which I think is a pretty good analogy. Sticking to both requires some effort and willpower but the results are rewarding. His philosophy is that a monthly budget number is too tough to maintain. In his book, he explains how to bring your budget down to one number to remember and apply to your everyday living.
If you determined that in order for you to lose weight you’d need to consume no more than 2,000 calories a day, tracking that would be pretty easy. You could even “bank” some calories and consume less during the week in anticipation of a nice dinner out on Saturday. If you tried to do this on a monthly basis, allowing yourself only 60,000 calories in the month of April, tracking your calories would become much more complicated. Mr. Hastie believes that by taking your monthly expenses and savings and converting this to a daily number you can more easily stick to your budget. His daily budgeting method may not work for everyone just as a certain type of diet may not work for everyone but it can’t hurt to try a new approach if what you’ve tried before has failed. I found the link to an old Saturday Night Live skit on his Facebook page (thedollarcode) quite amusing: https://vimeo.com/50044167.
Holly Nicholson is a certified financial planner in Raleigh. She cannot answer every question. Reach her at askholly.com or P.O. Box 97128, Raleigh, NC 27624