Providing financial counseling for many years, a question like this often comes up: Why is it hard to start saving? Money is a very emotional thing and we all have our own thoughts and opinions about it’s use, which can be very personal. We can always justify our wants into needs - its a matter of developing the strongest argument as to why this or that is a need not a want, thus eating up our entire pay check on the mixture of real needs and perceived needs (real wants). 

Here are some reasons why it is hard to start saving money:

1. Saving money requires self discipline - lots and lots of self discipline. There is no one around “forcing” us to save money, like the government forces us to pay taxes. Saving is 100% on us personally. With each and every paycheck that comes in we have to make the choice to save. Establishing a habit of saving comes after months and perhaps years of successful saving.

2. The money we want to save is competing with the money we want to spend - there are so many wants and perceived needs that we look at and say, “I can afford this” and so we spend the money before saving. When in reality we might not be able to afford it, but because we want it we buy it.

3. People tend to spend first and save what is left over, when they should save first and spend what is left over. These priorities are mixed up. When we spend first and try to save what is left over there is never enough to save. We can always spend what we earn and our spending/perceived needs increases with our income.

4. Successful savers save first. They pay themselves first and pay others last. They sacrifice their short-term wants for long-term goals. They understand the difference between needs and wants and they focus on their self-discipline in other areas of their life so saving becomes a more natural extension of their disciplined life. In our society of instant gratification, which is filled with stuff, we focus on the things we don’t have. With some justification we make those things into needs, and exchange our future savings for wants, thinking they will bring us happiness, ignoring our future.

Keeping a budget in line is a very key element to saving money. Our spending can and often does expand with our earnings, making every purchase important! One key to being a successful saver is to have an emergency fund established. And ONLY use if for emergencies! 

How do you go about saving?

Many people simply save through their work via payroll deduction. They may contribute to the company 401(k) plan or other savings vehicles and call it good. Real savers do save through work and save more on their own. They simply move some money to an old fashion savings account, then when that gets to a significant size they invest it in some manner. Savings can be built several different ways. 

Saving money can become a priority. Developing the self discipline to save will be an attribute that will bless you for years to come. Struggling with it is natural, have faith that it can be done! Go do it!! Please let us know how you go about saving money. What are your challenges with saving money - outside of your company retirement plan?

REMEMBER: “The Power to make and keep commitments to ourselves is the essence of developing the basic habits of effectiveness.” Stephen R. Covey

Years ago I use to teach seminars about personal finances and one thing we use to talk about was what I will call the distractions of life. We all live busy lives, some extremely busy, and so we end up living by the rule “if it ain’t broken don’t fix it”. Often we all create our own busyness and the level of “busy” is largely up to us. Yes we have work and family obligations, but we are in control of many of those obligations.

Yesterday I was visiting with a client, we belong to the same social club and he asked about the annual picnic being canceled, since I attend the board meetings he figured I would have some insight. I told him that there simply was not a Saturday in May that worked; too many other functions were already planned. After all May starts graduation season for college and high school, it has the Memorial Day Holiday, and you could also throw in the beginning of the wedding season. Who does not know of someone getting married during the months of May or June?

As a result of our busy lives our personal finances get left to what ever benefits our employer offers and then we simply hope for the best with everything else. It has been said that the average family spends more time planning their annual vacation than their family finances.

The distractions of life seem to come in waves and they are timed just like the waves at the beach, some are larger than others, but they come regularly and timely. Here are some examples:

We start every new year working to get caught up from the holidays, then it is Valentines Day, the world tells us we have to do something really special for our sweetheart and we respond. If we know what's good for us we'd better!

Next is Easter and Tax season, so we say to ourselves and others “I will attend to my personal finances after I finish my taxes.” So lets meet after tax season is over. Tax season ends and…

It is graduation/wedding season and my child is graduating from high school and my nieces best friend is getting married, so out goes May and June - just too busy. Lets meet in July…

Well July comes and we have again the wonderful holiday we call the 4th, Independence Day! (Wouldn’t it be wonderful to be truly financially independent on Independence Day?) And it is also vacation season, with August on its tail. Things will settle down after we return from vacation and we will have time to work on our finances…

Here we are at the end of August and into September back from vacation, but life is so crazy with trying to get the kids settled back in school and the Labor Day holiday, we just can’t find time to visit…

Then October starts and it is the beginning of the fourth quarter, work gets demanding simply because we have to make a strong push for the end of the year, the hours at work are so crazy, maybe it will slow down next month…

Next month is the beginning of the holiday season, with Thanksgiving (my personal favorite). Then Christmas and New Years and we all know how busy the holiday season is so we simply can’t meet then…

Soon enough we are right back where we started at the new year with little to no progress on our personal finances. The waves keep coming. At some point we have to stop and take control of our lives and our finances. It is all a matter of priorities. If we wait until its broke, then often we can’t fix it. If all we do is take what is offered to us as benefits from work, then what happens if we are unlucky and get the dreaded pink slip? Poof, just like that, our benefits are gone.

I have a client in that very situation who was hit by a storm. During his last job, he developed an illness that prevents him from obtaining life insurance. He lost his job and benefits, he always thought that he would have enough wealth so he could as the drive-by’s say “self insure his life”. With the large amount of money he has, he still has two young children, he still needs some life insurance. A little time and planning would have helped a lot.

Don’t put things off, get things organized, see a professional financial advisor, make sure they at least have a professional designation, that requires them to have some level of financial education and a code of ethics, the best are: ChFC, CFP, and CPA. As a ChFC (Chartered Financial Consultant) I understand the education, rigorous exams, and practical experience necessary to obtain such a designation, my clients have benefited from this additional training.

Get started today, after all the waves will always come regardless, and so will the storms. Don’t let the waves get in the way of preparing for the storms!

REMEMBER:

"Opportunity abounds in alleged bad times."

"True optimism includes realistically looking for opportunities among bad developments"

~ Howard Ruff

We typically know how much we spend each month, but do we really know the details? Budgeting is the process of creating a physical plan for the uses of our monthly/annual cash flow. A budget therefore is a spending plan, it is the document that tells you and others how and where the money will go. While that is the basic concept there are several aspects of putting together and implementing a budget, namely finding the data, drafting a budget, agreeing to the budget, and using a budget. Budgeting is an essential building block to effective personal finance. I hope to bring about a positive mindset about using budget, so lets explore these items:

Finding the Data

Right off the top this can be a task of self examination! I ask clients to go back through four months of check book statements and list and total where money was spent. Where people spend money tells a lot about what is important to them. The reason I ask for three months, some quarters may have a funny month of spending, it may require some extra data mining from another month or two in order to get enough accurate information.

Don’t forget to list all the sources of income. Often the focus is solely on the spending, but listing income is important too. List bonuses, or second jobs, etc., an accurate income figure is especially important if it varies monthly due to commissions, overtime, or other factors.

When assembling this information determine the level of detail to categorize the spending. For example there are several items that I buy at a grocery store that are not actually “food”, but since I bought them there, I put them in the grocery category. I try to keep it simple, otherwise I could end up separating items on one receipt, calculate the proper tax, and then put them in their proper category.

Next arrange where the spending has been based on “Needs” vs “Wants”. This is really important as it helps to prioritize our spending. Maybe you value your entertainment budget, but most likely it’s not more important than your mortgage.

Drafting the Budget

Once the data is organized, it is easy to see where and how much money has been spent. This becomes our basis for drafting the budget. Make sure at the top of the budget is the line “Pay Myself First”. Successful budgeters realize that they don’t save what is left over, they save first and spend what is left over.

Add a bottom line figure of approximately ten percent of the spending part of the budget for “TIF” - Things I Forgot. We all forget items or things pop-up which need some attention. This is where those items go.

After subtracting the savings, spending, and TIF, from the income, the bottom line should equal a “0” - zero! This is called Zero Based Budgeting. If the figure is positive put more into savings, if it is negative, then look to the wants section for items which may be easier to live without.

This is where each person needs to come to grips with the “needs vs. wants” in the family finances. Focus on the needs then prioritize the wants and make things stretch as far as possible. However, do not eliminate or cut into savings. Savings is not the float figure in the budget!

Agreeing to the Budget

Now that the budget is drafted, it has to be agreed upon. It is critical that spouses agree to the budget, particularly if this process is to be successful and effective. Both spouses must be “All In”; one can’t simply dip a toe, while the other dives in. I cannot emphasize this enough. It does not work well if one spouse works within the budget and the other spends what ever they want, after all they should be on the same team.

Because things change, spouses should have a monthly meeting about their budget items to review what was done the past month and what the plan is for the next month. This little meeting should be taken seriously, by calendaring and keeping the meeting time sacred - do everything possible to make it happen. Needed changes should be noted and agreed upon and then move forward.

Using the Budget

The budget is a financial tool, a spending plan - where dollars are told what their job is and sent off to do that task, in an effort to accomplish certain goals. What a budget is not, is a form of punishment! A budget should free us from many financial decisions that may be thrown at us on a daily basis through various forms of media. A budget is a way of disciplining ourselves by keeping our needs and wants in check.

We all have wants, a new TV, automobile, vacation, etc.. A budget helps us get these items by structuring how and when we get them. It keeps us from impulse buying, by predetermining how and where we are going to spend our hard earned money. This means that all these wants, can be had in their proper time, when the money is saved to make such purchases. This is a category I call “save to spend”. My mother use to remind me as a young boy, “You can only spend it once!”

Let the budget work for you by developing the habit of using it. Make your monthly meetings effective, at times they may take only a few minutes to simply review and say, “no changes needed”. Good, move on and have fun. Other times the meeting may take a little more time due to larger up-coming changes as to where money needs to go. Once this begins to happen regularly, recognizable progress will come.

Don't let the on-going meetings be the weakness that kills the process. Remember the meeting may only need to be ten minutes to review and discuss the next month. The habit and discipline of monthly meetings will be what greatly increases your success of sticking to your spending plan. Steven R. Covey said, “The power to make and keep commitments to ourselves is the essence of developing the basic habits of effectiveness.” Keep it simple, but make it happen. With a new mindset about the use of a budget, your financial effectiveness will increase by keeping the commitment to properly manage your cash flow. Effective money management buys you financial freedom.

You can download my simple effective budget spreadsheet here.

Effective Budget Instructions:

Start with the Budget Data Worksheet:

The categories on the left side can be changed to match your income sources, savings buckets, needs and wants, and where you spend your money. As you change the category titles, place them in order of priority, what is most important to your family to least important.Enter your income and expenses from your bank statements and earnings statementsThe information should flow to the next worksheet titled Budget.

Next go to the Projected Budget worksheet and create your budget going forward based on your needs from the historical data. You can make changes as needed the same way as you did in the budget data worksheet. As the months go by update the budget as needed.

The key is the discipline to meet together regularly, review, change as needed and move forward. Claim progress toward your goals every time you meet. Remember we are talking about “buying you financial freedom.”

Working with four months at a time allows you the ability to see a quarter plus one month, it is a large enough time to see progress but not get too overwhelmed by the amount of work and numbers to deal with.

Nothing in the spreadsheets are protected - feel free to make changes as needed to fit your circumstances. Good luck to you and God bless your efforts!