We can all agree on one thing...people HATE financial lingo. Their biggest complaint is that their advisor uses too much financial lingo and they end up feeling lost in all of it and therefore quickly become disinterested in it. I have witnessed this first hand while trying to explain things to my hubby and suddenly his eyes roll so far into the back of his head I think he can see behind him. Or worse yet people feel stupid and are afraid to ask questions, which leads to ostrich personality disorder. When you are feeling overwhelmed because of the financial lingo even the smallest budget can feel daunting.
This is one of the biggest reasons I created Conscious Beyond Wealth, I wanted a website that can educate people on finances, money and wealth without being overly complicated. I have realized that using straight forward language and realistic examples that everyone can relate to with some funny analogies thrown in because let’s face it I don’t want your eyes to roll into the back of your head has helped people become more confident in their financial knowledge.
This brings me back to my topic for today…Budgeting. It doesn’t seem like a big scary financial word yet the majority of people run in the opposite direction when I bring it up. It is almost as if I have suddenly put on a hockey mask and acquired a chain saw, (cue the horror music). So, since I love horror movies (more than I love Doctor Who) I have come up with some guidelines on how to survive budgeting which are similar to the guidelines of how to survive a horror movie.
No Alcohol or Drugs
I know! I know! I took the fun right out of this at the beginning. Much like in a horror movie if you dull your senses in any way you are liable to end up with an axe in your back. While your budget won’t literally kill you if you mess up, you are more likely to miss something critical if you finally decide to try to budget after a glass or two of wine (liquid courage isn’t helpful here). It seems like a good idea but it really isn’t. Remember this is also my advice when speaking to your partner about finances. Save the booze for the celebratory drink at the end of the budget session.
Use the Buddy System
Ever notice how it is the random person who; wanders off by themselves, into the creepy basement where the lights don’t work and the scary music gets louder, who ends up hanging by a rope? Having a partner to budget with can make the whole process easier to survive. This is especially important if you have a significant other. Your budget is more likely to succeed if you build it together versus all by yourself. Don’t have a significant other or maybe you and your spouse still aren’t able to speak about this without breaking things, enlist professional help. As a Financial Planner I clearly love budgeting and when you partner with someone who loves budgeting it will help take the stress out of the process for you.
In a horror movie if you don’t get your own weapon you might as well just stand in the middle of the street screaming “Hey crazy killer!! Pick me! I am right here!”. However, when budgeting your weapons are your bank and credit card statements…so if you could kindly put down the kitchen knife that would be great. You can’t create a proper budget without arming yourself with the right information. You will need your statements so that you can see what you are receiving as income and what you are spending each month. I have had clients who provide me with random numbers for their budget and when I tell them they have extra money of $500 a month they will look at me like I grew an extra head. With imaginary budget numbers you will come up with imaginary and unsuccessful solutions which lead to unhappy results.
Plan your escape
If you are running around with no direction, like a chicken with its head cut off, you will end up decapitated. Budgeting is the same, if you have no idea what direction you want the budget to go you won’t reach your destination. Remember in my first post where I said we focus too much on the money versus the end result? This is precisely where we need to remember that money is the tool. Here is a example:
Alan (Hi honey!) and I really want a new camper. Our current one is too small, which we came to the realization after being stuck in it for 6 hours on a rainy day in Cypress Hills last summer. So let’s crunch some numbers.
Disclaimer…as much I would like to tell you my actual budget I like being married so these numbers are fake for example purposes only.
We do some research to determine that the camper we are looking at would be around $5000.00. We figure we could sell our existing camper for about $2000.00 therefore we need to save $3000.00.
Disclaimer: we don’t need anything fancy, my husband is a squirrel and I am a financial planner, enough said.
Now because Alan is a squirrel, we will not be buying this camper in the summer but towards the end of winter next year. So we will say we have ten months to save, which would mean we need $300/month.
Buy new camper: $5000.00
Sell old camper: $2000.00
Need: $3000.00 in 10 months (3000/10 = $300.00 a month)
So now we have our goal of a new camper in 10 months. We also know that in order to achieve that goal we need to save $300.00/month. So where do we get the tools/money to achieve our goal? We build a budget. Simply put, budgeting is planning to use your tools to accomplish your goal. Much like making it to the end of a horror movie, it can get tough, but if you really want to accomplish your goal you can overcome budget obstacles…and serial killers. Let’s do this!
Step one: What is your income? This is simply what is deposited into your bank account like your paycheque.
Step two: What are your fixed expenses? These are things you can’t live without: mortgage payments, utility bills, grocery costs, gas, etc.
Step three: What are your variable expenses? These are things that change from month to month because they are based on wants not needs: your Starbucks addiction, subscription to Knitter’s monthly
Step four: Do the math…
Income – Fixed Expense – Variable Expenses = money for camper savings
Reality Check…..it is very rare that you are going to do this and the exact amount you need to accomplish your goal is going to be here. It will probably involve sacrifice…..like the popular girl in school who dies first in the horror movie…you will need to sacrifice something for the greater good.
This is why focusing on the goal, not the money, is more important. If you focus only on the money you are probably already feeling defeated, you may have actually already said “well I don’t have enough to save so this isn’t going to happen, might as well just give up now.”
If you focus on the goal and how much it means to you to accomplish this goal it is easier to be willing to make the choices to accomplish it. Let’s get back to our example.
Income ($4000.00) – Fixed ($3200.00) – Variable ($700.00) = $100.00 (we need $300.00)
Clearly we can’t change our fixed expenses so we need to look at the variable expenses and what we can sacrifice for the next 10 months to accomplish our goal. After calmly discussing we have decided that we will cut the wine budget each month (that was hard guys), I will cancel my subscription to knitter’s monthly and we are going to get rid of cable TV. Now we have $300.00 a month to save towards the camper.
I still find it hard to believe that people will assume the killer is dead and they are safe and that it is all over. Only to find the killer is actually still alive and now they are cornered with nowhere to go.
This can happen with your budget! I encourage if you are in a horror movie to ensure that the killer is dead by over-killing them, thus the reference to “double tapping”. Same applies to budgeting, it can’t hurt to check your work. Make sure that your numbers and information is correct and the sacrifice is something you can actually give up.
You are more likely to fail if you associate budgeting with what you are giving up versus what you will accomplish. If you place more importance on the end goal then the short term work becomes rewarding. I like to envision how much happier I will be in my larger camper with room to move and suddenly I don’t miss Knitter’s Monthly, plus Pinterest has free patterns online!
I know what you are thinking…Caval you missed a critical step with surviving a horror movie, don’t have sex. I didn’t miss it…this is about budgeting people, get your mind out of the gutter. I said the steps were similar, not exactly the same.
Can budgeting get more complicated than this? Absolutely, that is why I have a career in it. However budgeting can be less complicated and scary if we educate ourselves and shift your focus on what is really important, your goal.
Do you have a budget story to tell? Share it in the comment section below or even let me know what you would like me to write about next.
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