Thursday, January 9, 2014

Budgeting Basics - The Big Picture

Alright friends, let's get down to brass tacks here.  The big B word - Budgets.

Answer me this - why is it that you want to create a budget, anyway?  I mean, besides the fact that "everyone says" you need to budget, why do YOU think you need one??

-- Are you working paycheck to paycheck right now, stressing at the end of each pay period because there are more days left on the calendar than dollars in the bank to cover them?

--  Do you feel like you just don't have a good handle on where your money is going each month, and feel like you want to be come more responsible about where you're spending?

--  Are you planning for a wedding, and trying to figure out how you'll merge your finances after you're married?

-- Are you freaked out about the fact that you really haven't started saving for retirement, or the kids' college accounts, or a huge dream vacation, and are not sure how to come up with the extra cash to do so?

-- Are you still in college, and are getting really overwhelmed about the thought of being out in the real world soon, having to fully manage a "big kid job" and finances like a real adult?

Now that you've thought a little bit about why you want to set up a budget, let's take it a half step further- when it comes to budgeting, what is your end goal here?

It's totally ok if you have more than one financial end goal.  I have like 7, including paying off debt, saving for college for my 2 babies, and saving for retirement (we're going to be covering these topics in a lot more detail, but I'm just going to generalize here for the moment).

Take a minute to really think about why you want to create a budget- what those financial end goals are- and jot that down on a piece of paper.  Let's keep what you wrote down on the front of your mind while I dive into this next section.


I'm going to take this topic in a bit of a different direction now, so bare with me.  Let's talk about cooking for a minute.  I love all things food-related, so am all about a good food analogy.  Let's go there right now.

Bottom of the barrel basics here-

What is a recipe?

A recipe is a game plan to make a certain meal, right?  So there are 3 parts to a recipe:

-- The list of ingredients
-- The list of actions you need to perform in order to transform those ingredients (aka the actual cooking)
-- the completed dish you just cooked

So let's rephrase that in a different way- a recipe is a list of items we need (the ingredients) and a list of actions we need to take (the cooking) in order to get to a desired end result (the completed dish).

Do you know what else is a list of items we need and a list of actions we need to take in order to get a desired end result?

* ding ding ding*

Your Budget.

Are you feeling a little surprised by what I'm saying?  Are you thinking to yourself  "Wait a minute- I thought a budget was just a spreadsheet that matched my income up against categories of expenses I have for each month, and told me how much I could spend in each category?"  Yes, you're not crazy - the traditional definition of a budget is exactly that.  Take your expenses, bucket them into categories and assign them dollar amounts, then try your hardest not to overspend on them each month.

But I want you to think outside of the traditional definition of budget here.  I want you to stop thinking of a budget as just this income/expense spreadsheet you need to put together and follow to the letter, and start thinking of your budget as your financial recipe.  Let me expand on this-

When I was a really little kid, I used to spend Saturday mornings raiding the fridge while my parents were still in bed.  I'd crack some eggs into a Tupperware and add anything that was within my little reach - black pepper, olives, chocolate sauce, Italian seasoning, ketchup, you name it.  I'd whisk it all together, microwave it for about 5 minutes until it was a nice little souffle, and then take it to my parents room and beg them to eat it for breakfast (lucky them).  When my mom would ask me to try some myself, I'd basically give her the 6 year old equivalent of "H(eck) NO!".  The end result was something you couldn't pay me to eat- I was just experimenting with ingredients and seeing what happened.

Fast forward to today- any time I'm making something in the kitchen now, I'm cooking with a purpose.  Unlike my microwave "a pinch of this, a handful of that" souffle days, I'm focusing on what it is that I'd like to eat, and then working backwards and collecting the ingredients necessary to make that dish happen.

Let's talk about your financial recipe now-

We're going to take our definition of a cooking recipe - a list of items we need (the ingredients) and a list of actions we need to take (the cooking) in order to get to a desired end result (the completed dish)- and change it into the definition of a financial recipe:

a list of items we need (your expenses and income) and a list of actions we need to take (how we manage our money day to day) in order to get to a desired end result (our financial end goal)

The biggest thing I want to drive home for the next step in our journey is that I want you to stop putting your full focus on merely creating a budget list to follow, and start focusing on your financial end goal.  Putting your full focus on your budget list/spreadsheet (the ingredients), without any thought as to what the end goal is you're actually trying to achieve (the completed dish), is just like how my focusing on ingredients only when I was little resulted in a poorly thought out microwave souffle.  My heart was in the right place, but the end result was just a big, hot mess.

If you don't know where you're trying to get to financially, just throwing a strict list of expenses together and trying to stay within its boundaries isn't going to work well for about 90% of us.

So my challenge for you is this- start thinking about what "success" would look like to you at the end of this financial journey, because that vision is different for each and every one of us.  Once we have the end in mind, then we can really get cookin' (lame pun totally intended, sorry) on putting a game plan in order to get you on the financial path to success.

"If you don't know where you're going, then you probably won't end up there."
-Forrest Gump                                 

Wednesday, January 1, 2014

E-mail Subscription Now Available

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As always, I so appreciate you taking the time to read Let's Talk Money, Honey.  You're the best.


Happy New Year!

Happy 2014, friends!  I hope you're having a wonderful (and relatively hangover-free) start to the new year!  I have to say, I think New Year's Day is my favorite holiday of the entire year.  There is just something about fresh starts, clean slates, and the hope of new changes, isn't there?

I'm thinking that many of you have some sort of personal finance-related resolution this year, am I right?  I have a few ideas swimming in my head as well, but haven't committed to anything yet.

I'm sure some of you are answering in your heads "Yes, absolutely!  This year I'll finally get on a budget and stick to it!  So get to the posts about budgeting already, lady! Clock is ticking!"  After all, that's the deal with New Year's Day, right?  Take your laundry list of new goals for the year, and start executing all of them once the clock strikes midnight January 1st, right?

When it comes to your finance-related goals this year, my friend, I'm going to give you this answer in return:




Here's the thing- do you remember the list of New Years goals you had last year, or the year before that?  You know, the ones about budgeting or losing weight or quitting smoking or saving money.  The ones you started fastidiously executing at midnight January 1st?  Let's be honest here- how did that end up going for you?

If your resolutions turned out like 99.8% of the ones I've made over the last 10 years, I'm guessing you kicked butt at them for 1-2 weeks, then maybe had a liiiiittle slip up or 2 somewhere along week 2-4, and then  left them completely in the dust come March 1st.  Can I get an honest Amen about this?

Remember how I said that managing money is all about psychology and emotion?  One of the greatest lessons I've learned about myself over the last couple of years is that I have a HUGE tenancy to get hyped up about something, dive in head first 1,000% percent, and then get overwhelmed or burn out as quickly as the obsession began.

Full (embarassing) disclosure, since we're all friends here: I'll fess up and admit my guilty offenders include budgeting (I've easily spent 100 hours creating intricate Excel spreadsheets that never get touched), starting a new business (I've created 3, and signed up with 2 home-based businesses), learning French (gifted Rosetta Stone tutorials still in the box 18 months later), cooking Indian food (?!?), and even running a marathon.  You guys- I've actually signed up (and paid for) 2 different marathons in the last 6 years.  Number of training runs logged? Zero.

Knowing this about myself, and hoping that at least a few of you can secretly admit to the same general behaviors,  we're going to approach your personal finance goals and actions a little differently.

What we're not going to do right now is make an aggressive list of challenging goals that will choke you, trip you up, and cause you to ultimately stumble right off the wagon.  That's not going to do us any favors.

What we are going to do is take this ride very slowly at first, get the hang of things in baby steps while we educate ourselves and - more importantly- start to understand our psychology and emotion behind why we behave the way we do with money.  I know that sounds kooky and totes touchy feel-y -- I promise you we won't get too Kumbaya up in here.  But it's important, so you'll continue to see that theme here.

Here's a little homework for you- if you've gotten to the end of this post and are still chomping at the bit to get this show on the road, I hear you.  Make sure you've read this post, and then take it a step further by playing around in Mint a little bit. I promise you that's a HUGE step.

If you want to go bananas, now is the time to start listing out all of your general expense categories (rent, each different utility, food, car insurance, etc.)  We'll go over that in detail soon, but feel free to get the ball rolling there if you'd like (or just stay in your pajamas all day, bake brownies, and be too lazy to wash your face like I am).

Happy 2014!