60 Days to Change: Week 4

(Green Candy.com) - Below is a summary of the second week from the 60 Days to Change Challenge program. For more specific details on each day of the challenge sign-up here . 

Day 22
The Mechanics of a budget meeting

You are probably surprised that it took until day 22 before we had a serious conversation about budgeting. Many financial programs have you jump head first into budgeting from the very beginning. But, when you don’t take time to develop your financial acumen prior to forming your budget, then you have a great chance for failure. You need to know what is at stake. And after the previous 21 days of change, you are now ready to tackle the most important part of your new financial life: your budget.

Living on a budget gets a bad rap. It is often confused with the concept of penny-pinching. However, budgeting mainly concerns itself with three very important concepts: awareness, communication, and accountability.

A lack of awareness will crush you whether you make $30,000 per year or $300,000. It is the biggest. It is the biggest reason that people continue to live paycheck to paycheck regardless of their increasing income. Budgeting simply is the process of making yourself aware on a regular basis.

A lack of money communication can be the death knoll for your relationships. A budget meeting gets the communication flowing, and prevents “spontaneous” money conversations. Those are bad. They usually occur under a stressful situation. For example, when one person finds out about the other person’s unsavory spending habits.

Accountability is important anytime that you are working towards a goal. And if your goal is to change your financial life for the positive, then

Your monthly budget meeting has three participants you, your spouse, and your computer. It should take place within the first ten days of the month. The topic of your meeting is your previous month’s spending. Your budget template that was provided to you by Pete the Planner is also quite necessary (shameless plug). You need to have your checking account activity, credit card activity, and any other spending activity statements from the previous month printed out on separate paper. You need your check register and a couple of highlighters as well. Some people feel that you all need is one of the fancy packaged budgeting programs. I disagree.

Day 23
Finding the Surprise Bills

Surprise, that bill isn’t a surprise.

Nothing messes up a smoother sailing financial life quite like an unexpected bill. The funny thing is that most unexpected bills are just forgotten financial commitments. Some of the biggest examples of these types of obligations are car insurance bills, license plate renewals, vacations, and holiday expenses.

 

Lets take the time right now to translate some of these periodic expenses into monthly expenses. You can then plug the new monthly budget totals into your budget.

	Annual Cost	Monthly Cost
Car Insurance
Homeowners Insurance
Vacations
License Plate Renewals
Car Maintenance/Tires
Landscaping
Tutition
Vet Bills
Clothing
Property Tax
Birthday & Holiday Spending

Surprises (perceived Surprises) are what sidetrack people financially. You must eliminate all the surprises.

Day 24
Surplus and Shortage

The main reason for having a monthly budget meeting is to determine whether or not the previous month produced a shortage or a surplus. Every business in the world knows whether the previous month produced a surplus or a shortage. If they don’t know, then they are headed for the same fate as though families that don’t mind their budget. 

If the concept of surplus versus shortage seems familiar, it is. You covered this in high school economics, but if you are like me then you had probably forgotten about it because of all the pretty girls that happen to have been in your class. Other things that I have forgotten yet relearned from high school econ: the concept of supply and demand, the phrase “there’s no such thing as a free lunch”, and what in the world an oligopoly is.

Day 25
Finding price targets

Tracking your expenses is not only important to increase your awareness, but eventually your data will allow you to set price targets. Which begs the question, what is a price target? A price target is the amount assigned to a given budget category. You will attempt to keep spending under this target. You will first calculate a three-month average of the given category. You will then reduce the average by 10 percent to create your price target. For instance, if you have determined that your average monthly grocery costs are $400, then you will subtract 10% ($40). This means that your price target is $360. Your goal is to keep your spending for that budget category under the target of $360. This is the best way to reduce spending. It requires you to constantly strive to spend less.

Every month you will need to compare your actual spending to the price target. This is a great way to track your discipline and your progress towards your goals.

Day 26
How do you stack up?

Knowing where your peers stand is an important way to measure your progress. Below you will find the national spending averages taken from a 2007 study. Expenses are listed as a percentage of gross income.

• Food 14.9%
• Clothing 5.4%
• Housing 24.9%
• Personal 8.7%
• Medical 20.4%
• Transportation 11.9%
• Other 13.8%

 Total 100%

There are so really important observations that can be made in looking at this material. The most obvious observation is that the average American is really struggling with their money. The “other” category encompasses gifts, vacations, savings, debt, pets, and hundreds of other things. This means that there is no way the average American is saving as much money as they should. The medical costs are extremely high in the national averages. These averages should excite you. We can do much better than this.

Day 27
Predicting next month’s bills

Do you have a large dinner party planned next month? Do you have a long road trip to Aunt Bessie’s planned? If you do, then start thinking about how it will affect your budget. Many monthly budget problems can be prevented by simply thinking ahead.
Take 15 minutes to think through your year, and you can find some budget roadblocks.

Day 28
This should have been one of your toughest weeks. The fact is that your budget is the key to getting your financial life in order. Most people don’t take the proper steps to improve their financial lives simply because they are afraid of the hard work involved. Some of the most rewarding things in life are also the most challenging: parenting, physical fitness, and your finances.

Budgeting, as you have learned, is about staying organized and taking the time to think through your financial life. Get a calendar out, and think through your financial year. Are there certain periods of the year that you actually spend large amounts of money? Account for it.
Don’t get surprised by obvious things. Take the time to think about the payments that occur quarterly, semi-annually, or annually. Make sure that you put these items in your budget. Vacations, insurance, and holidays shouldn’t sneak up on you.
One of the primary goals of budgeting is to determine whether you have a surplus or a shortage. Are you going deeper into a hole every month? You need to figure this out during your budget meeting. It is okay to have a bad month, but you need to make sure you make adjustments so that the following month isn’t bad as well. The problem is that people don’t take the time to identify a bad month because they want to ignore the problem. Don’t do that. It makes everything worse.

The concept of developing price targets requires some math skills. But fortunately, calculators exist. The purpose of developing price targets is to constantly push yourself to be better. Take your three month spending average per category, and then reduce the amount by 10%. Then try to stay under this price target. This is especially effective for the following categories: groceries, dining, clothing, and entertainment.

How did you stack up with the National Spending Averages? I’m sure that you were good in some areas, and not-so-good in other areas. The most important thing that you should gather from this is having your housing expenses in line. Over spending on housing is what got us into this mess in the first place.

Learn from your budgeting experiences. Allow the data that you gather from the previous months teach you how to spend money in the current month. Don’t keep banging your head against the wall. If you are overspending, then adjust.
Next week we will be dealing with Risk Management. Once that you changed your financial life, risk management will help keep you out of future trouble.

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