My wife cringes whenever I start talking about a budget. When we were younger and just married, I discovered Quicken, an automated checkbook and budgeting program, and with it I drove her mad. Every weekend, I hunched over my PC for hours setting up budgets, tracking expenses and analyzing our spending. And despite my good intentions, I abandon my budgeting efforts after a few months in order to preserve my marriage and keep my sanity. Instead, I adopted a cash flow strategy best known as pay-yourself-first.
Budgeting is a very important financial management process used by individuals, not-for-profits, businesses and governmental entities, and it serves two very important purposes. In the short term, budgets and their resulting reports provide an important tool for managing cash flow and spending. But that is only half the benefit.
Budgets should also reflect the mission and long term goals of an organization or an individual. It is all about putting your money where your mouth is. A budget, in addition to helping insure fiscal responsibility, should also be a statement or reflection of an organizations (or an individual’s) greater goals.
So, despite the hassles, budgets are important tools for organizations, families, couples and individuals. Budgets are key to manage spending and achieve your long term goals. But, at least for the individual or couple, there may be an easier way…
First, take time each year to determine your long term goals and when you want to achieve them. They could be anything, and may include buying a house, getting a new car, going back to school or taking that long desired trip to Europe. And, should include retirement.
Once your goals are identified, quantify them and set a target date. For example, let’s say you would like to accumulate $20,000 in 5 years to make a down payment on a house. Divide $20,000 by 120 (5 years by 12 months by 2 pay checks) to get the amount you need to save each month to reach your goal or $166. Now pay-yourself-first by setting up an automatic payment, either through your bank or pay-roll service, on every payday. Have $166 directly deposited to a savings or money market account established solely to accumulate the funds toward that goal.
Pay-yourself-first works wonders. Once the money for your goals is out of sight and out of mind, you quickly learn to manage you monthly spending based upon what’s left in your checking account. You can do it for all you goals. My wife and I have a handful of accounts set up for a variety of purposes. It works and it saved my marriage.