Sloppy money management is why you’re broke! The reason you’re in the financial mess you’re in is entirely because of you! The overdraft fees, the collection calls, the foreclosure notices, those are all your fault. These are 3 gripping truths I came to realize when sitting at the bottom of our financial wreckage. I kept thinking I could fix this problem with a fantastic income and that I could earn my way out of my stupidity. The truth is that I wasn’t being a good steward of the money God has blessed me with. The more I earned, the bigger and deeper the hole. It wasn’t until I realized that income wasn’t what was going to fix my financials woes, cutting my spending wasn’t going to magically make my bank account increase or my debt go away. It was that I needed to make a conscious decision to be better with my money.
My natural tendencies with money are stupid. They released the iPad 3 yesterday. My natural tendency had me on the website getting ready to click purchase. After a 14 hour workday with little to no stopping point I really just want to stop at Taco Casa on my way home and pick up some Taco’s for dinner. When I go into Guitar Center to buy some patch cables and the Ernie Ball bass I’ve been eyeing is at the door waiting for me to play it, my natural tendency says it’s a sign from God and I must buy it right now. All 3 of those happened to me this week along with several other “impulse purchase waiting to happen decisions” and I was able to walk away from all of them. Not because of some huge amount of self control and discipline. Not because I’m scared of what my wife would say when I walk through the door with a new guitar and an iPad 3 without telling her. (Even though I’m terrified of this scenario.) Simply put, it wasn’t on paper.
Each month we sit down and do a family budget. We discuss the things we’d like to do with money at the beginning of the month, make the math work, revisit it throughout the month, and go about doing the things we put on paper. I didn’t buy an iPad 3 yesterday because it wasn’t on that paper. We don’t have hardwood floors in our house yet because it’s not on paper. My soon to be born little girl does however have a new crib to sleep in because we put the purchase on paper before March began.
For us, that piece of paper (or excel spreadsheet) represents freedom. It’s our story of how we’re digging out of thousands of dollars of debt, building wealth, giving like no one else can give, and changing our family tree. Now after my long day of work, cold store bought pizza doesn’t sound so bad for dinner. Trust me, Taco Casa sounds way better, but if my sacrifice that night puts me one step closer to my goal I can suck it up. That doesn’t mean I don’t get urges to go buy all the items on my list of “toys” to go buy, which now totals up over $15,000 worth of stuff. It just means I have to plan out my spending and together with my family decide if that purchase helps us reach our goal. Right now our goal is to hammer out debt and to get a very solid financial foundation. Once that’s done I can look at iPad’s and guitars. Once that’s done my wife can have hardwood floors in the house and new counter tops. As long as we plan for it, and put it on paper.
That first budget is the toughest! Both of you have different ideas on what should be paid when and how much should go where. They’re intense meetings, but a few months in and you’re budgeting pros. You MUST stick with the first 90 days and know that you will be a terrible budgeter to start with. Inevitably you will think it’s possible to have $150/month towards groceries for your family of 6, and that you won’t eat out 1 time for the entire month, and that neither you or your wife will need any discretionary spending money. But 3 months in you’ll start getting the balance of wasteful spending vs. crazy over the top sacrifice.
Here’s where to start. Most people feel like they’ve been kicked in the guts in regards to money. Especially when the electricity shut-off notice comes, or when you can’t get to work because there’s no gas in the car and no money in the bank account. Because of this, you need to protect your GUTS first.
Groceries- Your grocery budget is by far the most important part of your financial plan. Not getting out of debt, not saving for your 401k, not getting a manicure and your hair-did. It’s ridiculous that the MasterCard bill is paid and there is no food in the fridge or cupboard for your 5 kids. Take care of groceries FIRST! We also include our eating out budget with groceries. Because of our schedule its darn near impossible for us to go an entire month without eating out, and date nights typically involve some type of food so this is where we categorize our money for any food that we plan on having that month.
Utilities – This is for your electric, gas, water, cable, internet, cell phone, security system, etc. If you’re still in debt you should look for ways to cut these down as low as you can. If you’re not, enjoy your satellite TV and 500 channels. Just don’t pay for your trip to Europe and not pay the electric bill. Nothing makes a wife more angry than blow drying her hair and all the power shuts off.
Transportation – If you’re in debt this is for basic transportation, better known as the cheapest way possible to get from point A to point B. Your transportation budget includes oil changes, tire rotations, fuel, insurance, and other basic maintenance. It also includes your savings for your future car purchases so you can pay CASH for all your cars for the rest of your life. If you have a car payment, you should hate it as much as I do and either pay it off quickly or sell it. Either way, make sure you include the payment in your transportation budget. It may seem odd that the transportation budget comes before shelter, but you have to be able to get to work to make the income to take care of paying your shelter bill.
Shelter – This is where you put all the money related to your house. Mortgage payment, HOA dues, lawn service, cleaning service, property taxes, insurance, repairs, maintenance, renovations, etc. Of course you keep these low while you’re in debt and the goal is to not have a mortgage payment so you can free up that cash for future investing.
This is where you start. Protect your GUTS and your marriage will be healthier. Protect your GUTS and you live to fight another day when it seems like nothing else is going right. Protect your GUTS 1st, then you can get an iPad3.
What toys do you want that you’ll budget for in April?