Moore for your Money
BYRON MOORE, CFP®
Question: I keep a very detailed budget on a spreadsheet. All my income and expenses are in there. I even categorize my debit card expenses from my bank statement each month. My budget shows a $500 positive balance each month. But I never have any money in my account by the end of the month. I cannot figure out what is happening.
Answer: Your math may be right, but your path is wrong.
If you were someone who wanted to lose a few pounds, a nutritionist might design a meal plan just for you. It might have the perfect proportions of proteins, carbohydrates and fats to make those pounds just fall off and those inches melt away.
And you might just read that plan over and over again, while eating a pint of Ben and Jerry’s Chunky Monkey ice cream (1200 calories). Man that stuff is good…especially while reading about how to make a kale and rice cake salad with lemon juice dressing. Mmmm…
In diets and budgets, it does no good to have a perfect plan, if you go down the wrong path.
So what do you do if you find you have a beautiful budget, but horrible spending habits?
Save first. Stop waiting until the end of the month when you’ve spent money on everything else. Magic happens when you put your priorities where they belong – first in line.
Spend cash. If someone is having a problem with overspending, the best emergency measure I know to stop the bleeding is to take every credit and debit card out of your wallet. Spend only cash for groceries, all shopping, gas and dining out. Watch what happens when you pull out $150 to pay for a pair of shoes.
Discover what you really spend. You may be accounting for every dollar in your budget. But your dollars that are supposed to go to savings are sneaking away and hiding in another category – usually named something really helpful, like “miscellaneous.”
For the next three months, keep an envelope with you at all times. Whenever you buy anything, ask for a receipt and place it inside that envelope. Your goal is to have 100% of your spending accounted for by a receipt.
Revise your budget with the facts. In three months, you ought to know what’s really going on. Change all the numbers in your budget to reflect this new discovered reality.
Make hard choices; aka, prioritize. If your goal is to save $500 per month, you’re going to have to make some hard choices about what is most important to you. You’ve already proven to yourself that you can’t live like you’ve been living and save money – there’s nothing left over. So what are you willing to change to make it work?
If that seems too complicated, you could…
Keep saving first and spending cash. Many have found that if they’ll just introduce these two disciplines, the rest takes care of itself.
If your budget plan and your financial reality are not matching up, don’t go looking to the budget for the answers.
You’re the solution to your busted budget math. Get on the right path.