Intention With Money

November 14, 2007

Pursuit of Happiness: Money

One of the big questions that comes up whenever you decide to change your life is, “Can I afford to do this?” This is especially true when you’re thinking about a career change or becoming a stay-at-home parent. There are lots of recommendations about cutting back to save up for a period of lower or unpredictable income, or to afford training or education. But they assume people know what they’re doing with their money each month. Most of us don’t.

I started doing a basic budget decades ago for one main reason: to see how much money I could spend on fun after I paid the bills! If we were thinking about buying something, we compared the payment to the money left over after the basics. “Can we afford it?” meant, “Can we afford the payment?” That included taking four or five months to pay for a VCR bought on the credit card.

With pay increases my wife and I paid off student loans and started paying extra on the mortgage. We even started setting aside money for retirement. Finally, piecing together different bits of advice (much of it conflicting), we paid off the credit card debt and started saving up to buy things instead of putting them on credit. We aren’t the greatest role models, but we use a budget to reach important financial goals. Here’s what we’ve learned:

• Start by listing the known things, like rent or mortgage, utilities, food, car payments and insurance, and gas.

• Develop categories for other predictable expenses, like buying clothes or eating out or fees for children’s sports or activities.

• Track your actual expenses for the past three to six months. (Suze Orman says that people consistently underestimate their expenses when she is working with them, so count everything.)

• Look at your take-home pay. (If you get a big tax refund each year, adjust your deductions so less is withheld and more comes home.) Total the amount you bring home each month: four weeks if paid weekly, two pay periods if paid semi-monthly or bi-weekly.

• Total all the things you have to pay, including rent or mortgage, car payments, insurance, and minimum payments on outstanding consumer debt. Look at how much is left over.

• Compare your history of spending by category to the amount of money available. If you use a credit card to help you spend more than you bring home, that’s a warning sign! Your clothes, food, eating out, entertainment, and “fun money” cannot total more than you have or you’ll go deeper in debt.

• Plan all your spending for the coming month. Dave Ramsey calls this “giving every dollar a name.” This is where intention comes into play. You make a commitment to yourself, and you and a spouse or partner commit together, not to spend money if it’s not in the budget. Budget everything, including “fun money” and entertainment, until every dollar is targeted.

• Follow the budget and keep track of your spending. Since utilities can fluctuate, wait until those bills come in before you spend much “fun money.” You might have to move money from there to help cover a high electric bill. Ouch!

• Review your budget towards the end of the month and start planning for the next month. Adjust your numbers as you get used to patterns. Plan extra for groceries if you’re having people over, and maybe adjust by doing less for entertainment that month.

At the end of three months, you’ll have a very clear idea of how much it costs to cover your basics and how much you’re spending for enjoyment. Using a budget, most people pay attention to where all their money is going for the first time. When you pay attention, you don’t spend it frivolously. It feels like a pay raise.

With your budget set you’ll be able to evaluate your priorities. You see that it’s possible to pay off debt or save up to pay for training, for a trip to explore options for your life, or to have a six-month cushion during a career transition. You budget for the basics, then for your priority, and you spend less on “fun money” or entertainment to be able to afford to pay for your dream.

It’s a short-term sacrifice with a long-term payoff. When you take charge of your money, you’ll know you can afford to pursue your dream. When you start putting money towards your dream, you put the power of intention on your side.
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NEWS FLASH! Seems this is a popular topic. Valerie Young of Changing Course just published her bi-monthly newsletter and the lead article is about lots of ways to move out of debt. It’s available on the internet. Click here. And while you’re at her site, sign up for her newsletter and check out the other resources.

Posted in Pursuit of Happiness: Money, Zine 2: November 2007, Zines in 2007