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If a Budget Freaks You Out

Call It a Spending Plan Instead

Few words strike fear in the hearts of my clients like the question, “Do you have a budget?” The irony of this is that the stress induced by poorly managed spending literally keeps people up at night. So how can we take control of our money? I like to focus on what’s most important to me – awareness and setting myself up for success.

Let’s start by talking about traditional budgeting, and why many people find it hard to implement. The focus on the traditional budget is on control – which is fine. But the control – and the power – is in the theoretical hands of this nebulous concept of the budget. This is not a good thing.

You may have heard of the envelope budgeting system. Using envelopes, you create a budget for every spending category, and when your paycheck arrives, you take the cash and divvy it up between each envelope. Each envelope may only be spent on whatever category for which it’s earmarked. If you run out of gas money, but you have money left over in groceries, start walking. If you forget your household items envelope at home, go get it.

For some people, this works. I see it being most helpful for people who are serious over-spenders. If you’re adding to your credit card debt every month and barely getting by because you are prone to impulse buys, then you may need an extreme intervention. Using an envelope system can be an intense way of quickly getting control of your spending and raising your awareness.

The problem arises in that it denies the fact that how we spend money is not rigid. In other words, in real life, we can choose to move money around from envelope to envelope. This can make it hard to really stick with this budgeting plan.

When we feel like our budget is controlling our lives, we start to undermine the budget. We start cheating. We feel guilty, but not so guilty that we don’t do it again – because we think we are only cheating on the budget. In reality, we’re cheating ourselves out of what it is we really want.

I prefer a different take on managing our monthly spending. It starts with the name.
I don’t use the term budget. I prefer spending plan. It might sound silly, but think about it: A spending plan is something I choose to do, it’s not forced on me. I choose to save money for my post-career phase (aka retirement), my kids’ college degrees, and that trip to Disney. That means I choose to make some different spending choices.

I’m okay with that.

I really want to take my kids to Disney. I really want my kids to go to college without taking on tons of debt. I really don’t want to have to work until I’m seventy-two.

Here are three secrets to my family’s spending plan success:

1. Know what matters to you. My husband and I are committed to the same long-term plans (financial freedom) and short-term plans (traveling with the family). Okay, that isn’t really a secret, but it’s important. Using a sports analogy, when the whole team understands the play call, everyone can play their roles and a touchdown is more likely.

2. Focus on awareness. This doesn’t mean put a huge guilt-trip on yourself. Instead, it means know what your target is for the spending items you have the greatest control over. For us, that means groceries, going out to eat, and children’s activities. When I’m at the grocery store, I know my weekly budget is about $150 a week. Despite my best efforts, I usually go to the grocery store twice a week. So if I spend $135 the first time I go, I turn it into a game to spend as close to $15 as possible the second time around.

If you have a problem area (dining out, clothes, gifts, etc.), try using cash for those items. This is an example of when a mini-envelope system could come in handy. Using cash for holiday shopping instead of credit or debit cards certainly brings greater awareness.

Also, consolidate the accounts from which you spend. If you use three to four accounts each month, it’s difficult to quickly check in and see how you are doing. We use a credit card from our bank. That way we can quickly check in on our total spending to see how we’re doing for the month.

3. Set yourself up for success by automating. With three big savings goals (financial freedom, college, and travel), I have set up automatic transfers for each of those goals every month. Now I can plan my spending around those transfers. In the past, I tried to simply remember to transfer the money to our Roth IRAs and vacation account, but I just never seemed to have as much cash to save as I anticipated. Since I switched to automatic transfers, I have boosted our savings every month, and I feel good about it instead of stressed. Automating our savings is probably the biggest thing we have done to simplify our financial lives.

I hope you are feeling inspired to re-examine your family’s finances. Start by identifying what matters the most to you. Pay attention to what you spend when you’re out shopping. And, finally, automate your most important savings goals. You can do this!

Lauren Zangardi Haynes, CIMA, CFP (R) is a fee-only financial planner and founder of Spark Financial Advisors. She has three young children and a rambunctious puppy. Learn more about Lauren’s services at Spark Financial Advisors.
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