My first encounter with the type of planning that goes into an effective budget was through Dave Ramsey. I came across his Financial Peace University in search of some help for a friend who didn’t handle money as well as I did. I was soon to learn that there is a distinct difference between handling money “better” than your friends and handling it “well”.
While Dave is well-known for his emphasis on getting people out of debt, it turns out that he also had quite a bit to say to “victims” like myself – trapped in a cycle of living paycheck to paycheck. His message began with a lesson on the importance of “cash flow planning”. This was, essentially, the same budgeting technique that my mother had attempted (unsuccessfully) to teach me years before. The difference was that I wasn’t to figure out an entire year’s budget all at once.
Instead, Dave’s budget involved monthly planning in which I was to write my income at the top of a page, then progressively deduct my expenses. Once I’d finished listing everything I had to buy like insurance, fuel, food, and clothes, I began allocating the remainder of my paycheck to other categories until the total amount deducted equaled the amount of my paycheck. (Dave calls this a “zero-based budget” and he offers a great budgeting tool online at: http://www.daveramsey.com/tools/budget-lite/ if you’d like to try this for yourself.)
Each category received its own, separate envelope into which I placed cash. In a sense, each envelope was a tiny savings account designed to ensure that I didn’t have any more unplanned “emergencies”. (I will forever recall the blissful feeling I got the first time I was sick and opened my wallet to discover that the “medical” envelope was stuffed with more than enough bills to cover the cost of my medicine. It was as though I’d discovered that people do get sick… and that it was something that could be planned for!)
This sense of satisfaction, however, lay months into my future. As I looked over the figures for my previous three months spending, I began to panic. After allocating most of my paycheck to necessities either immediate or anticipated, I had very little left. Moreover, my records made it clear that my belief that I wasn’t an impulse buyer was not supported by the facts. No, I didn’t grab candy bars at check registers or make instantaneous decisions to purchase “discount” goods at the local retailers, but I did have two particularly weak categories: food and books. And these two categories consumed such large quantities of my income that it was no wonder I found myself scrambling for cash each time I had to make an automotive repair. I had a problem and something needed to be done… immediately. (To be continued…)