Financial Matters

My Budget Isn’t Working!!

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Keeping track of where your money goes is difficult for most households. Most people think the way to do this is to set up a monthly budget. Budgets look forward, but what if the solution was to look backwards? Yes, instead of trying to estimate what you will spend, take a look at what you actually do spend. How? You need to do a cash flow report for your spending.

Understanding how you spend your money is critical to accomplishing your financial goals. The goals might be to pay down or off debt, save for a major purchase like a home or vacation, or simply to have more money in the bank. Knowing where we want to go is a first step. We start off with great intention, knowing what we want to accomplish but still are not reaching our goal.

ARE YOU IN CONTROL OF YOUR SPENDING?

Ever feel like when it comes to your money you are not in control? It comes in but more goes out than you can account for? The really frustrating thing is when despite a financial windfall or raise in income, you still do not feel like you are getting ahead. If we really want to know what is happening then the problem must be addressed head on with a plan.

Some attack the problem by putting themselves on a budget. Unfortunately the word “budget” feels like the word “diet” which conjures up feelings of being deprived. Setting a budget is looking forward and trying to estimate or limit the amount of money we will spend each month. If we guess wrong and spend more, we feel like we have failed.

Furthermore, we immediately want what we told ourselves we cannot have. We start off at a disadvantage, trying to force ourselves to do something that does not feel natural or comfortable. Now change is not always comfortable so that is not the goal, but we can at least give ourselves a fighting chance of being successful if we do not start with one arm tied behind our back! Let’s start off on a more positive foot.

TAKE CONTROL

To help take control of your spending you must first understand where it is going each month. Forward looking budgets are not a true representation of how you will actually behave. Instead of setting up a budget, take the time for a more valuable exercise and do a cash flow report of how you actually did spend your money the previous month.

A cash flow report is simply an accounting or list of all your expenses by category. Most people will have the same general categories, housing, utilities, vehicle, food, entertainment. Do not forget important areas such as insurance payments, cell phone and internet bills, health clubs, personal care and medical expenses. Finally do not overlook debt payments (credit card or loans).  Each person may need to add expense categories that are relevant to their spending. 

The key is that every expense be categorized. You are not helping yourself if you think it is okay it ignore the small purchases at a coffee shop or the once or twice you went out to dinner. These small expenses may total more than expected when taken as a whole over a month’s time. You must be brutally honest with yourself and categorize ALL your expenses!

AN HONEST LOOK AT YOUR SPENDING

A cash flow report will identify what you are intentionally doing with your money. For example, even if you have the desire to save, if the report shows that you did not put money into savings then one problem has been identified. There must be alignment in your thoughts and action to make the progress you desire.

Hopefully one of the categories listed will be savings! Isn’t that one of the reasons the report was done? To figure out why more money was not being saved or available to spend on the stuff you want? One reason is because during the year, expenses happen that we didn’t anticipate so take time to look back over the year to see if there were any unexpected expenses. Was it a big repair? Was it an illness that caused increased medical copays and prescriptions? These types of expenses can be planned for by adding to saving each month.

THE NEXT STEP

Getting a hold of your spending means first understanding where it is going. Once the cash flow report is done it will show where your money actually went. The truth about your spending will be on paper. As uncomfortable or tedious doing the report might have been, that is the easy part. Now the work of deciding if you are happy with what is on paper starts. Does anything come as a surprise? I spend how much on what? If so, the good news is this was identified sooner than later.

With this information comes the power to make an informed decision about changing your spending habits. It is a balance. More in one area, less in another. Perhaps more to debt payments and savings, less to entertainment? Small changes will add up and tracking your progress month to month will help keep you motivated. Progress toward your goals will take time but make each month a step toward your goal not away. 

CHECK BACK IN WITH YOURSELF

Once the cash flow report is done it might need to be redone in later months. If things do not seem to be progressing, do another report to see where money is going. You might have fallen into old habits. The important thing is to stay mindful and do periodic checks. As the saying goes, “Rome wasn’t built in a day”. Using the strategy of a backward looking cash flow report might just be the tool you need to help build your empire.

Asalyn Coachman is a Registered Representative of and offers Securities through The O.N. Equity Sales Company, Member FINRA/SIPC, 39395 W Twelve Mile Road, Ste. 102 Farmington Hills, MI 48331 (248) 482-3600. Investment Advisory Services offered through O.N. Investment Management Company. Financial Architects, Inc. is not affiliated with The O.N. Equity Sales Company or O.N. Investment Management Company.

Asalyn earned a degree in Economics from Harvard University and a law degree from the State University of New York at Buffalo. She lives in Lake Orion with her husband and two children where she is active in organizations such as the Harvard Club of Eastern Michigan, Lake Orion Schools, and the Baldwin Center of Pontiac, Michigan, where she serves as board president.

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