Budgets: Putting it on Paper, Defining Priorities, and Doing what it Takes

In the previous budget post detailing an organized way to set up monthly and yearly budgets (Budgeting Tool #1), I briefly mentioned the importance of getting that budget on paper so that everything can be seen in "black" and "red."

Putting it on Paper
The reason I believe that it is so important to get everything down on paper is because I firmly believe that financial discussions for families should be about the meeting of minds, defining priorities, and working as a team to ensure that those goals are met. Without solid information, it is more difficult to come to that all important meeting of the minds that needs to take place. Without solid information and data, it is much more likely that accusations will fly and parties privy to the budget will feel unfairly attacked, disenfranchised, and patronized. In short, the budget should be used as a tool to monitor and control the finances of the household, not monitor and control each other.

A poster in the comments section of my last post, "Sleep Deprived," demonstrates just how important a written budget is to achieve a meeting of the minds. He states:

I used to do create a similar budget in MS Excel. It didn't take long to realize we were "in the red" every month. Convincing my wife to help make lifestyle changes was thought at first. But when I showed her that she had spent $1,500 on clothes (for herself) for 2 consecutive months, she got with the program. Within 2 months, we were able to achieve positive cashflow.

Defining Goals
Preferably before a budget is created, but certainly by the time a budget is created, a family should define their priorities so that appropriate adjustments can be made. But since goals change as circumstances change, I have decided to place the defining goals as a second category.

Obviously, financial goals will be as diverse as the families defining them. But, it is important to know your goals and be able to state them. Having a goal in mind makes the sacrifices that come with achieving those goals much easier to handle.

Whether your goal is to lessen your debt load, eliminate your debts, stay out of debt, build your savings, buy a home, make a major purchase, or achieve long term financial security, chances are that you cannot "have it all." No matter what your financial goal is and no matter how different it is from your friend's financial goals, the commonality is that something will have to go.

MominIsrael points to a column in Maariv dedicated to fixing a couple's financial issues. In the case that MominIsrael highlights, the couple find themselves in a monthly overdraft (translation for non-Israelis: they are debt financing their current lifestyle). The wife does not want to sell their apartment, which is eating up 40% of their take home incomes. However, it seems that they have a myriad of other expenses.

If I was consulted, I would suggest that they define their top priority and focus their budget around that goal. If keeping their apartment is their top goal, there are plenty (and I mean plenty! Just follow the link) of adjustments that can be made to help them achieve this goal. Of course, the couple might find that cutting out the expenses to achieve this goal are just too much and may choose to redefine their goals and work their budget around those goals.

Goals need not be etched in stone. But, they should be clearly defined so all involved parties know what they need to do to achieve their goals.

And, one more note on goals: I believe it is wise to include older children in defining and prioritizing goals. Of course, parents still need to maintain a high level of control as they are the heads of the household, but it is perfectly acceptable to let your children

Doing What it Takes
There is not much to say regarding doing what it takes, as it should be self-explanatory. What is hard is "saving face" in front of the neighbors who oftentimes seem to have no problem letting you know that you should be providing x, y, or z for you family. The "Ortho" part of the "nomics" is that we live in communities that more or less have rigid expectations of what is a must. Here, we must define what is a need and what is a want, for your own family. Ultimately, you will be much happier because you will be achieving your own goals, rather than feeling like a failure because you can't keep up with the Goldberg's, and you will feel in control of your pocketbook, rather than feeling disenfranchisement.

(More on these topics later).