Monday, May 24, 2010

10) The Benefits of Budgeting

id you ever try to do anything that took aim?  Drive a car?  Parallel park a car?  Shoot a bow and arrow?  Ring toss on the boardwalk?  Shuffleboard?  Horse Shoes?  ‘Sink a basket’?  Throw a ball?  Thread a needle?  Click a mouse?  Step off the curb?  Pour boiling water?  Cut an onion?  Put on lipstick?  Scratch your head?  Put food in your mouth?  Pee?!

            Your aim doesn’t have to be exact, but it guides you in the right direction.  Eventually, with practice, you perform unconsciously or at a gut level.  But the skills always start with slow, concerted movements, focus and concentration.  And these skills that can be developed into an art.

Well a budget is financial aim.  It helps you to target how much money you’ll need for something.  Something like food, clothing, shelter, taxes, personal care, travel & entertainment, school, retirement, a car, burial!

            Some people have too much month left at the end of the money.  They think they know that they earn enough, but it always seems that they run out of money too soon; why?  There are two possible reasons: 1) they don’t earn enough/spend too much, and/or 2) they do earn enough but it’s a matter of when their money comes in & goes out.  This second concept isknown as cash flow.  Their money comes in at a time other than when they need it to spend.

Just like the tides, or your breath, money must flow.  It flows in and it flows out.  Sometimes there’s a full moon or new moon, which will affect the tides; sometimes you breathe heavily and sometimes normally.  So it goes with money.

Sometimes you have to pay for holidays, vacations, tuition, emergencies, taxes.  Sometimes you get raises, have a ‘good month’, earn a bonus, win a lottery, inherit or receive a tax refund or stock dividend.

Therefore, the question becomes, not only, how much goes in and out, but when does it go in and out?

To figure this out requires doing only one good budget in your lifetime.  I’m probably the only financial planner who will ever tell you this, but it’s true.  One good budget, and you’re set for life.  Why?  Because by the time, you’re an adult, your values and spending habits are mostly in place.  (Although, yes, you can change them.  See below.)

What I mean by this, is that you already kind of know where and how you like to spend your money.  Do you walk/bike or take subways & buses or do you take the car/taxis?  Do you cook or eat out/take-out?  Does your wardrobe go in the washer or to the cleaners?  Do you clean your house or does someone else?  Do you camp or stay in 5-star hotels?

This is your personal business - not your professional career.  It’s no one else’s business - unless you share your life (significant other, kids, cats).

Therefore, you can now make a list of these items and their amounts.

This exercise is enlightening, fascinating, possibly scary, possibly depressing.  But you’re the CEO of your personal business, and you’re responsible to you, your stakeholders, and maybe others.  Seeing the numbers, which don’t lie, raises awareness, challenges values, changes habits.

Sometimes it’s easier to do this exercise on a Friday night with a glass of wine (or two), but in one sitting to ensure you finish.  You’ll never have to do it again; I give you permission.  You can even go to and download ‘SFN - Budget & Cash Flow List’ and ‘SFN - Budget & Cash Flow Worksheet’ and print out multiple copies.

Whether you do your budget on a yellow legal pad or accounting paper or my forms or in Excel or Quicken-type software, make this list.  Get a calculator, too.  This list will include your Inflows and your Outflows.

First, list the items that reoccur every month like income, food, clothing and shelter.  Estimating is fine so long as you’re close; otherwise get out the checkbook register and/or invoices and/or bank & charge card statements and confirm the numbers.  Average them if you must.  Then write them down in pencil or a way that easily allows you to change the numbers later - just in case.

If you’re not sure of the numbers, or don’t have access to records, visualize; ‘walk’ your way through your spending.  For instance, let’s say you’re going to the supermarket; try to remember what the bill at the register usually comes to.  Let’s say you go to market once a week and spend about $25; how much is that per month?

If you answered $100, you’re wrong!

There are 52 weeks in a year; if you divide 52 by 12 months, you get 4.3.  There are 4.3 weeks in the average month.  So 4.3 weeks x $25/week = $107.50/month.

If you have only 4 weeks in the month (x 12 months), you’ll only have 48 weeks in your year!  And right up front, your budget is off by a month!

Okay, so how do you shop for clothing?  Do you go on 3 big sprees a year of $300?  That’s $900/year.  That’s $75/month average.

Let’s say you take one big vacation per year.  Everyone needs to vacation.  All of Europe seems to get 4 weeks or more, so it’s important to rest, refresh and de-stress.

So, let’s say you always budget $2,000. (By the way, this concept is good for other, big, periodic expenditures, such as Christmas).  But every time you return home, you find that you spent closer to $3,000.  What happened?!  The short answer is to stop lying to yourself about what it really costs or needs to be; stop deceiving yourself.  You’re the CEO of your personal business, so step up, take responsibility, make some value judgments and budget the correct amount.  You’ll actually feel better, too, for learning to ‘take the bull by horns’ and make the tough decisions.

Oh, you forgot that the car to/from the airport would be an extra $150.  And while you were away, you decided to dine a little better than you thought you would.  And you were so stressed out that you got a hot rock massage and your hair braided.  And you found just the right bathing suit/sandals/dress/ski pants/jewelry.  And there were waterfalls on the other side of the island that you didn’t know about.  And you found just the right memento. Oh, and a collectible for your co-worker’s office collection of glass figurines.  Of course, you had to buy a few little gifts to bring home for people.  And you ended up having such a good time, that you tipped everyone well.  And there was airport transportation on the other side!  And foreign immigration made you pay a departure fee!  In cash!!

Then you’re on the plane home and you start, “Oh my god, I spent all of my money and then used credit cards.  The bills will be enormous”.  And you start to stress out so much that by the time you get home, all your ‘west and wewaxation’ is TOTALLY SHOT!  “AAAHHHHHHHH!”  says blockhead Charlie Brown.

So don’t lie.  If you always do this, and therefore know that you need $3,000 for your budget, you’ll have to find that extra $1,000 from other places.

Maybe you can now make an executive decision to bring your lunch to work once per week, and eat dinner out one fewer time per month, and get your nails done a little less frequently, and take some subways here and there, so that over the course of the year, you have the extra $1,000!

Now, aren’t you proud of yourself?!  (Give yourself credit.)  You’re getting the guiltless vacation you deserve for the price you’ve budgeted, you’re a little healthier from taking your lunch and cooking your dinner (so the portions/calories and food groups are right) and best of all, you spent your money on purpose, instead of by accident.  You’ve made conscious, deliberate decisions, an excellent, values-based, life skill!

So, if you’re going to purposely think through this budget, you’ll never have to do it again.  Instead, once in a while (e.g. once per month, once per year, when your rent changes), you simply go back to the budget you’ve created and change that one number!  You don’t have to re-do the entire budget!  It will last forever, so long as you periodically update it.  In addition, you should use it as a management tool to guide your decisions.

Now, a word about when you spend your money.

Let’s say that you go to the butcher, the baker, and the candlestick maker weekly and/or monthly, you go to the cobbler periodically, and the vacation is annual.  For monthly budget purposes, you, either, have to multiply/divide the numbers appropriately, and put the average monthly amounts in your budget - or you need to do 12 side-by-side budgets on the kitchen table - one for January, one for February, etc.  Items like groceries will go on all 12; the vacation will only go on one.  Your paycheck will go on all 12 as an inflow (vs. outflow), but your bonus will only go on one or two as will your tax refunds.

When you total everything, you’ll know which months may fall short, which ones may have extra, and then you can ‘sandbag’ the extras for the months that fall short.

The savings for the ‘short’ months should go into a separate savings account (e.g. a web bank like ING Direct, Emigrant Direct, HSBC) to prevent temptation in the meantime.  Until you have an adequate emergency fund (e.g. 3-12 months of BUDGET - not income), it can function as an emergency fund, opportunity fund or simply as a buffer against issues like deposits that need time to clear.

If that vacation will cost $3,000, which is $250 per month into savings, it should be added to this separate savings account.  It should be added, not necessarily monthly, but per paycheck!

Do you know how to eat an elephant?  One bite at a time!  Bite-size, small pieces, slow and steady.

Note that there’s a difference between getting paid twice a month (= 24 times/year), and every two weeks (52 weeks/2 weeks = 26 paychecks).  Either way, $125 auto-deducted twice per month when you get paid is usually easier than waiting to do a bigger amount less frequently (that may have ‘accidently’ been spent on a new pair of shoes…).  If you do ‘steal’ from yourself, it will be to a much smaller degree.

Some final thoughts.

‘Cash is King’ means many things.  Here, you should mark those budget items that can be spent in cash (e.g. groceries, dry cleaning, movie tickets, dining).  This is due to my contention that when you see the ‘green’ wrestled from your fist, your values will also come into play.  Too many people purchase based on price rather than value.

It’s a lot easier to buy a meal with ‘plastic’ and then pay a monthly credit card bill on the web, than it is to wrestle your currency out of your fist.  Even if it’s the breakfast special for $5.95 (w/tax & tip: $8?), did you really need to eat bacon?  How about egg yolk?  What about the buttered toast & jelly?  The 3rd cup of coffee?  The potatoes?  You may be healthier and thinner, if you change this.  On the other hand, if it’s the only time you treat yourself, and get out and get away and get sunlight, maybe the management decision is to do so.  Spend cash whenever reasonable; you can still get a receipt and the transaction & accounting is easier.  COD.  KISS (Keep It Super-Simple - no name-calling).

If you’re going to spend cash, I recommend that you make a list of these weekly items to carry on your person.  Add them up.  Round the total up to the next multiple of $20, so that all ATM machines will spit it out.  Pull it all at once.  The little extra rounding is ‘mad money’ - have a ball.  Buy a lottery ticket.  (See for ‘What to Do if You Win the Lottery’.)

Choose a key day of the week to withdraw your ‘weekly living allowance’.  Thursday or Friday could be bad if you’re suspect to blowing it on Cosmopolitans at a TGIF event.

If the amount of your living allowance is substantial for you, then keep little check-size envelopes in your underwear drawer, labeled ‘dry cleaning’, ‘groceries’, ‘A&E’, etc. and stash those amounts until needed.  Again, if you steal from yourself, it will be smaller amounts, and it may be that you decided to spend your A&E money on clothing instead - a management decision - spending on purpose.

At the end of the day, dump all of your coins into a bowl and let them collect.  Ben Franklin did not say, ‘a penny saved is a penny earned’, he said, “a penny saved is tuppence” - two pennies - because you take the penny you saved and invest it (capitalism), and it earns another penny.  By the end of the year, it may be a few hundred dollars, a Roth IRA contribution, the Christmas tips for your doormen, or a new dress for New Year’s.

Fiscal Fitness.  Thriftiness,  Smart Money Management.  Financial Acumen.  Higher Values.  Life Skills.  Empowerment.  Pride.  Honor.  Confidence.  Stress-free Happiness & Contentment.

            Eventually, you can learn to manage your money for a week at a time at a gut level.  Then you can learn to manage your money for a month at a time, then a year at a time, and, finally, for a lifetime.

            Qapla’  (Success!)

Monday, May 17, 2010

9) There are 8 Million Stories in the Naked City

aked City is a 1948 film noir that took place in NYC as seen through the eyes of a couple of NYPD partners.  In 1958, it became an acclaimed TV series.  It always started with a shot of New York City’s skyline (cityscapes, I like to call them), while the male voice-over said, ‘There are 8 million stories in the Naked City, this is one of them”.  Then you’d see one with some guest stars.

So here’s one from the SFN Vault - the names are changed to protect the innocent.

Maria was trying for partner at a major consulting firm, dominated by white men.  She earned in the mid-6 figures, but the job was terribly stressful.  She had to travel often, and for extended periods of time.  She was divorced, and had neither children nor pets.  When she had a free moment, a massage was the first place to which she would run.

One thing that she definitely didn’t want to do was to have to tend her money.  She was so busy earning the money that she didn’t want to have to manage it; she wanted to earn it (step 1) and spend it (step 3), so she hired me as her Personal Business Manager to manage it for her (step 2).

For one inclusive, partly tax-deductible fee, I took care of her banking, bill paying & record keeping, her credit rehabilitation & negotiations (from having ignored the due dates), her insurances, investments & taxes.  Together, we established goals, a budget (including how much she needed weekly in cash for her pocket), and performed her financial planning.  We met weekly on Saturdays on the telephone to review reports, talk about upcoming events & expenditures, and so that she could list what checks she had written or credit card charges she had incurred.

When Maria didn’t have to work, she splurged, maybe too much.

She was always away from her many siblings and their kids, whom she adored, so when they got together, she treated everyone to everything including Disney trips which included everyone’s airfare, entry, vans for the group, hotels, food, and gifts.  If it was NYC, it was hotels, vans, dinner, Broadway shows, and shopping at American Girl dolls.

She also spent a lot of time and money on long-distance cell phone calls to friends and family.

In addition, she probably wasn’t exercising enough to control her weight and stress, so she’d pamper herself emotionally with massage, shopping, travel, cultural, and dining experiences to fill the void.  Various minor medical disorders further caused her weight to fluctuate, so clothing - good clothing - was a must.  And because she traveled so much by airplane, she always had a healthy budget for new hard cover books,

She was seldom able to save in spite of being in the highest 1% of all US income earners, and when she did, she usually ended up having to wipe it out due to debt that would inevitably pile up, in spite of my interjections and support.

Eventually, Maria needed a new car, and in order to project the image of a partner to her co-workers, had settled on a BMW.  As she was stationed in the West, at the time, I flew cross-country to help her shop.  But before I went, I researched car negotiation techniques, to supplement my general and credit negotiation skills, BMW prices, BMW dealers, and scheduled some appointments.

We went shopping, she went test-driving, I negotiated, she signed on the dotted line, and after two days, Maria had a new BMW at a price with which we were comfortable.

Maria never made partner but instead retired at 55 and became a librarian living near family.

You tell me.

There are 8 million stories in the Naked City; this has been one of them.

Wednesday, May 5, 2010

8) Spring Cleaning

The birds are chirping, the trees are blooming, and few of the diners have yet to start their air conditioning.  It's time to throw open the windows and clean.

            Cleaning also means organizing.  There are a number of 'starts' or 'births' per year and a number of endings: December 31/January 1, religious holidays (e.g. Rosh Hashanah, the Jewish New Year), numerologically, your birth year, your marriage year, your fiscal year (i.e. Financial/business/tax year), the 'school year', the seasons & solstices.  All provide plenty of opportunity to take inventory and to take action.

            To take action, it helps to make a plan, an action plan.  To plan, it helps to know from where you're starting, where you’re going, and then to map out the different routes you might take to get there.

            Some routes might be fast & direct, but uncomfortable or distasteful.  Others may be relaxed, slow and scenic, allowing for diversions.

            So, you have to prioritize while maintaining balance (e.g. Living for today while planning for tomorrow), otherwise you may always be postponing your gratification for the future and miss appreciating or enjoying the present (or vice-versa).  Stopping to smell roses while being a workaholic.

            In addition, your life mission might dictate that you prefer the 'journey' rather than - or in addition to - the destination.

            You're the CEO of your personal business, so you decide (while considering the welfare of the others for whom you're responsible).  You have to take care of No. 1 (i.e. you), before you can save the world.

            So, while cleaning house, what do you keep and what do you mercenarily & mercilessly discard - and how do you decide?

            Start by downloading 'How Long Do I Keep It?' from  Shred or totally burn what you're discarding to prevent identity theft.  Shredding and burning are cathartic, liberating, and satisfying.

            Include wine, music, or something enjoyable while you perform this act to make it easier.  Include family members but be careful of the risks of little fingers in shredders or fire.

Take note of your accomplishment upon conclusion and congratulate yourself, as it is a very difficult act for most people.  Make it a Rite of Spring.  The hardest part is simply starting.

            When the dust has cleared and you've decided what to keep, your starting point is defined.  Now financially organize it by visiting and downloading 'Initial Consultation - Client Homework'.

            Then set some goals and deadlines, the objectives you will use to accomplish them, and the priorities of your action plan.

            Implement and monitor, let cool.  This recipe should feed all.