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.

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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                                 

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xo

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:

WRONG.

NO.

WRONG.

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!

First Things First- Where Is All Of That Money Going?!

If there is one thing I've learned about personal finance, it's this-  managing your money is just as much about (or in my case, WAY more about) psychology and emotion than it is about dollars and cents and numbers and spreadsheets.  Think about it- if it were as simple as spending things you're supposed to spend on, and not spending on the things you're not supposed to, we'd all be in fantastic financial shape, now wouldn't we?

In order for us to become successful with managing our money, we're going to have to get into understanding WHY we're behaving the way we are with our money.

I need to paint a picture for you here friends, so if you can just stick with me until the end of this post, I promise we'll start getting to the ACTION part of this whole money management situation.

Let me give you a little glimpse of what my budgeting routine used to look like:

Step 1: Exasperation.  Think to myself "OHMIGOSH (or frankly, insert many expletives here)- I'm broke AGAIN this month.  Where the heck did that paycheck go?!?! I need to be better about managing my money.  Next month, I'm totally making a new budget and getting my spending on track."

Step 2:  Create a plan.  Follow the experts' advice and prepare to track  my spending for the month, so I know where the money is going and can rein in my silly spending.

Buy cute little notebook to carry in my purse so I can write down everything I'm spending.

Buy a new pen to go with the cute little notebook, because using a new pen on a fresh sheet of paper feels amazing.  I've so got this.

Step 3:  Start tracking.  Begin the first day of the month by writing down all the spending I'm doing throughout the day.  Go out to lunch, but decide to scale down my Taco Bell order to a medium soda and lose the small nachos, because I'm totally trying to save money. (Sidebar- wonder if this standard TB order may also be fighting my 'let's try to lose some weight goal' as well?...)

Walk to Starbucks in the afternoon with coworkers.  Decide not to order a drink because I'm totally trying to save money.  Feel good about not having to write the Starbucks purchase in my cute little notebook.

Day 1- Meticulously tracked
.
Day 2-  Forgot to get a receipt when I went to lunch, so leave a little blank in the notebook and wait until my debit card transaction hits my online banking account, so I can add in the entry.

Day 3- grocery shop hungry, and then put 1/4 of the stress snack food I'm about to buy back on the shelves because I shouldn't be buying it.  Hit the in-store Starbucks on the way out of the door because I'm so hungry I'm seeing double.  Forget to log the coffee because I can barely thing about anything else.  Write down 4 more transactions that day, then remember the Starbucks, white out the last 4 transactions with one of those little white out correction tape pen thingies (because duh, they all need to be listed in perfect chronological order, right?!?) and re-add everything back in.

Step 4:  Downward spiral.  Days 8-10: Forget cute little notebook at home, so track the day on a Post-It note.  Lose Post-It note.

Days 11-14- TOTALLY forget that cute little notebook exists, until the cell phone bill hits the bank account and I realize I only have $3.00 until payday tomorrow.

Repeat Step 1.

...  Does this sound vaguely familiar to anyone here?  I cannot EVEN tell you how many times in the last 10 years I have gone through this exercise, but needless to say I probably could have bought a round-trip plane ticket with all the money I've spent on cute little notebooks and pens.

I finally found a (FREE!) tool to track all of my spending transactions FOR me, and even 6+ years later I love it so much that I'd probably make out with it if I could.  I cannot emphasize to you enough how important it will be for you to sign up for this site and to get all cozy and acquainted with it over the next few weeks, because it will be one of the most important tools for you to have in your personal finance toolbelt.

Are you ready?

Go sign up on Mint.com right now.  

Right this very minute.

This isn't any kind of paid referral-  I'm not getting anything out of this other than the fact that I really, REALLY want you to have this tool at your disposal if you're really interested in getting a handle on your finances.

I'll be walking you through tutorials over the next few weeks on how I use it effectively for our finances, but I'm so excited for you to sign up for the site I don't even want to wait for those tutorials to be finished.  Just go ahead and add all your bank accounts so that the website is able to access your transactions.

Leave me a comment once you've signed up (or to let me know you already have an account you'll be dusting off and updating) so I can do a little excited dance on your behalf.

Happy Mint-ing, and Happy New Year!

Let's Talk Money, Honey... An Introduction

Welcome to Let's Talk Money, Honey!  I started this blog as a way to educate people about personal finance in a way that is easily understood, and more importantly- easy to relate to.

A little background on me- I was a Finance major on college, and had been a financial analyst by trade for almost 10 years.  In 3 years' time, I went from working fancy corporate jobs in New York City and Phoenix to being a stay-at-home mom in Wichita, Kansas to 2 kids under the age of 2.  Talk about a serious adjustment here, folks.  Few things have stayed the same in my life over the past 10 years (I've resided at 10 different addresses, for Pete's sake!) but one thing has always resonated with me: I have always had a passion for learning- and more importantly, teaching- the subject of personal finance to anyone who will listen.

I want to state VERY CLEARLY here that I am not writing this blog because I've figured this whole 'personal finance' thing out, and have devised the *perfect* plan for you to change your finances (and your life).  Credit card debt?  I totally have it.  Student loans?  My husband took a full-time MBA program at a private university, and used student loans to finance it.  They're not med school-sized loans, but WOAH, NELLY! do my eyes bug out of my head each time I look at the balance.  All this to say, I'm not going to be wagging my finger at you here, and preaching from the "perfect finance" pulpit. 

What I am going to be doing here is talking about the things I have learned with regard to budgeting, saving, retirement, and just about anything else you can fit under the 'personal finance' umbrella.  I may talk about something because it actually worked for me, or may suggest something for you to do because I *didn't* do it an can serve as a cautionary tale.  Frankly, some of what we'll cover here will be topics I need to know more about (renter's insurance, anyone?) for my own personal use.

I'm going to be real on this blog, and I'm going to be honest.  And frankly, I bet I'll be a little embarrassed by the things I have done at times because as a 'finance-savvy gal' I should have known better.  I'm sure my dad will shake his head disapprovingly at some of the things I'll admit to- so I'm apologizing to you in advance, Papa!  But that's the thing about life, isn't it?  You learn and grow from your mistakes, and hopefully try a little harder the next time around.

Being in a stagnant or deteriorating financial situation can seem totally insurmountable, I know.  Instead of going to bed exhausted and happy on New Year's Eve, I went to bed a crying, blubbering mess.  I was so overwhelmed and distraught by the thought of another year passing without making any headway on my* financial situation.  I had a 9 month old baby, another baby on the way, and a part-time virtual corporate job I knew I was going to end in the new year.  I'd say that being beyond freaked out was an understatement.  I was just sick to my stomach with the thought of figuring out how to save for retirement, create 2 college savings account, and have another child on 1 income.

*I say mine here, because even thought we're married we still manage somewhat separate finances in certain categories.  I'll certainly be covering more on this later!

Now, here I am- 365 days later.  And guess what?

I survived.

Not only that, but despite losing my part-time gig and having another baby, we're actually in a better financial situation.  Baby steps here, folks.  It may not be much in the grand financial scheme of things, but I can tell you that I don't go to bed fretting over money every.single.night any longer.

I promise that anyone can get themselves in a better, more comfortable money situation with a little education and focused effort.

Failing to plan is planning to fail, my friends.  If at least one of you can take away a nugget or two of information that will help you to plan for a brighter financial future, than I have done exactly what I've hoped to do with this blog.

So- let's get started!  I look forward to going on this journey with you.

Have a question or topic you'd like covered? Email me at TalkMoneyHoney (at) gmail(dot)com!