March 19, 2013 by Will Ray
Last night in FPU we covered one of the most important lessons: Cash Flow Planning. Yes, the Budgeting Lesson.
This lesson is vitally important because you can “get” everything else, but if you don’t “get” this lesson, you really will not be able to do do everything else quite as effectively. You really won’t be getting “your money’s worth” from your money, and you won’t be able to make progress on your goals as quickly.
I’ve said this before, but we plan for everything. College, life, our week, building a house, our vacation, even a single day. Why not have a plan for how we’re going to use our money?
Without an effectively executed budget, there will always be waste of some sort. A cash-flow plan ensures that you get your money to go as far as it possibly can before it runs out.
The budget can be an incredibly freeing process for some people. It gives you permission to spend money on stuff you might have felt guilty or worried about in the past. People have shared what a freedom they felt in being able to buy clothes without guilt or fill up their car without worry because they had a plan and knew they weren’t messing up by doing that.
The budget is a plan, a motivator, and a behavior control all at once. If you effectively DO the budget, you see what you are going to do, and what you need to change in order to make progress happen.
Three quick notes of caution/encouragement:
1) Each month is different – Don’t do a budget based off of a “perfect generic month from heaven” as Dave says. Those don’t happen. You need a new budget, every month, based off of what you have to spend that month.
2) You are gonna be terrible at this – If you’ve never done this before, I promise you’ll screw it up the first couple of times. I know that doesn’t sound like encouragement, but this is: DON’T GIVE UP. If you come to tell me you stopped doing the budget because it didn’t work, and I find out you did it for one month, I can’t help you. It’s going to be ugly the first month you try this, but it’s progress. It will get better in the coming months. Stick with it.
3) Try a paper budget first – I know it seems stone-age, but try the paper budget first if you’re not already familiar with budgeting. It’s a fail-safe, sure-fire way to have a budget that you can read, work, and understand. Adding a complicated personal finance software program increases the learning curve significantly, because you have to learn how to budget and learn how to work the software. The harder this task is to do or learn, the less likely you are to stick to it. So, my suggestion to people new to budgeting is to stick to a paper budget the first couple months, get the hang of it, then graduate to a budgeting software or excel worksheet. It’s easier to learn a new system when you know how to do a budget in the first place.
Question: What’s holding you back from budgeting? What’s your biggest fear when it comes to making a plan for your money?