He budgets in his head

Something that comes up a lot is this idea that you can budget in your head.

The “budgeter” says they know about how much they have in the bank and they are pretty sure they know how much all their bills are. They use this to “budget” their money – which really means they assume they have enough in the bank to cover whatever they’re doing.

There is no plan, no goal, only assump­tions.

If this offends you, I’m sorry, but if your budget is in your head then you aren’t budgeting. Instead, you are fooling yourself into thinking you know how to handle money when you really don’t or don’t care to.

I’ve been there. I’ve lived that life and been that fool. Those “budgets” aren’t helping you do anything except lie to yourself.

Why It Doesn’t Work

Budgeting in your head is doomed from the start. There are several reasons for this; I’ll highlight a few:

• The total is unknown. When budgeting in your head, you don’t know how much you have when the month begins or how much you’ve made. Even if you’re paid on salary you aren’t going to remember the exact dollar amount added to your account. This starts you out at a disad­van­tage when trying to figure out how much you should have.
• The cate­gories are jumbled. This kind of budgeting jumbles all the cate­gories. Instead of answering the question, “how much did I spend eating out” your budget asks the question, “did I eat out too often”. Do you see the differ­ence? One has a number behind it, the other a feeling. There are areas in this budget you can’t account for without keeping a record of what you spend.
• Bills are unknown. If you don’t have them written out, you will forget how much your bills are. Sure, you have a pretty good idea of how much each bill is, but what about gas, food, and utilities? These bills change every month and if you don’t plan your spending you won’t know how much you really have in the bank once they’ve been paid.
• Money happens to you. The worst thing about budgeting in your head is that money happens to you every month, instead of a real budget where you happen to your money. What’s most insidious about this is it makes you feel like you’re in control when you’ve really lost all control of your money and spending habits.

What To Do

What should you do if you’re budget is stuck in your head? How to get over ignoring your respon­si­bil­i­ties with money? I’ll tell you on Thursday.

Until then, I have a question for you:

How do you budget?

I wanted you to hear more stories than my own. So, as part of the My Money Story series I am asking you to submit your story to me as a guest post. All of you have a money story. This is Tim’s story. Tim is a friend of mine and the person who intro­duced me to Dave Ramsey.

First of all, I would like to thank Alex for letting me make a guest post on his Website and allowing me to share my money story and thoughts on money and how to use it.

What is Money? (more…)

My friend Mike sent this to me a few days ago, I thought it was a perfect way to end the My Money Story series. For the rest of the series, click here

For the last month or so, Alex has been running a series about his money story, where and how he learned to spend respon­sibly. Reading those posts has led me to think about my own money story, which has a lot to do with the way my parents spend their money (money see, money do, if you will).

Even­tu­ally I stumbled upon an inter­esting truth that I had never really considered:

Although it may not have always been the case, the phrase “I can’t afford it” has become synony­mous with “I can’t buy it”.

This is a dangerous line of thinking because, compared to a lot of the rest of the world, Americans have virtually unlimited spending power. There is almost nothing that I cannot buy as long as I can convince someone to loan me the money for it.

And, at the end of the day, a loan is just as good as the money you’ve earned, right?

The trap that a lot of people fall into is purely philo­soph­ical. Without knowing how to separate the ideas of “can buy” and “can afford” you’re likely to start using a credit card to excess or getting a mortgage on a house that’s bigger and more expensive than what you need.

I’ve fallen into this trap myself, but maybe I’m a smarter person for it. If nothing else, I’ve learned from my mistakes and, because of them, I have a far better grasp of where and how my money (my actual money) should be spent.

What have your money mistakes taught you?

[This is an ongoing series called My Money Story. To Read the rest of the series click here]

After meeting Dave, my life was forever changed. The first thing I did was pay off, close, and cut up my credit cards. By God’s grace I got a bonus just big enough to pay off the cards and build up a $1,000 dollar emergency fund. Things were looking up.

My first budget was a train wreck. It took me three months of budgeting to get my number right; and even then I still struggled a bit.

After a few months of gazelle intensity I paused.

At the time I didn’t do much else besides going to school and working. It was a rough real­iza­tion. I wanted to have a life, but my budget plan meant I would be spending the next year paying off my car loan.

I felt like I was missing out on life. I rarely saw my friends, spent most weekends at home, and was on the edge of depres­sion. I needed to get out, expe­ri­ence life, and live with people. But how?

Dave’s plan requires “gazelle intensity” which is working with all your strength to pay off debt. Although I agree with this, it doesn’t leave a lot of room to live. And while that works really well when you’re married, as a single guy it’s hard to date or even meet people when you never have money. (more…)

[This is an ongoing series called My Money Story. To Read the rest of the series click here]

I first met Dave Ramsey on a warm December afternoon (it’s Texas; don’t be surprised).

Some mix of allergies, a sleepless night, and college stress had knocked me out for the day and I called in sick at work.

My friend Tim posted the link to Dave’s site on his (now defunct) blog.

I clicked the link prepared to see what this guy had to say. I assumed he was just another financial guy telling me the same things I had heard a thousand times before.

I was very, very wrong. (more…)

[This is an ongoing series called My Money Story. To Read the rest of the series click here]

I’ve been trying to remember where I learned how to spend money.

I started by telling you where I didn’t learn about money. Then I talked about how the only money lesson I got was from my youth pastor. But even that wasn’t very good. He taught a good way to break up a paycheck between savings, giving, emergency funding, and spending but it had no way of teaching me how to use each of those categories.

• What’s an emergency?
• Who should I give to?
• What are reason­able monthly expenses?
• How much should I save?

None of the big questions were answered. (more…)

[This is an ongoing series called My Money Story. To Read the rest of the series click here]

I didn’t learn much about money from my parents. And the public school I grew up in didn’t even try to teach us how to use money. So where did I learn how to handle a paycheck?

The first person to teach me about money was my youth pastor.

He only gave the sermon once, and I was 16 at the time, but when I got my first job at 18 I used the lessons he taught as an outline for how I would handle money. (more…)

[This is an ongoing series called My Money Story. To Read the rest of the series click here]

Last week I asked you to tell me how you learned to use money. The responses I got back were honest and powerful. If you haven’t read the comments to that post, do so now.

It’s easy to see from the world around us that most people don’t know how to use money. Many of my readers are older, have families, and are well grounded in society, but still admit they haven’t been given much of a financial education.

My story is similar. The short version goes like this:

No one really taught me how to use money, so I winged it based on church sermons, credit card commer­cials, and bits of wisdom I picked up from people who didn’t know much more than I did. Every­thing changed Christmas 2008 when I had a financial reve­la­tion and completely changed the way I use money. In 3 years I have gone from living paycheck-to-paycheck to being able to having a large emergency fund, being able to go on regular vacations, and quit my job and live off of savings for several months.

A pretty good story, but you aren’t here for the short version. Let’s start at the beginning. (more…)

Most of us weren’t taught how to handle money.

There are the lucky few whose parents sat them down and explained what it means to save, spend, and give away their money, but most of us learned how to use money from car sales­people, credit card commer­cials, and the rampant spending of our parents.

Our ignorance has made us easy prey. We’re losing money left and right; and every time we start to get things right, something else goes horribly wrong.

That’s why, over the next several Mondays, I am going to tell my money story. I’m not sure how long it’s going to take, but I know it will go for at least three weeks.

I want to show you that you aren’t the only one who is confused about money. I have been there and under­stand what it’s like to be good with money without actually being good with money.

To start this all off, I wanted to learn some of your stories by asking a simple question:

How did you learn how to use money? Let me know in the comments!

• We All Start Somewhere
• The 3–10-70 Method
• Cultural Guess Work
• Every­thing Changes
• Choosing My Lifestyle
• Spending Power
• Tim’s Story

“A good man leaves an inher­i­tance for his children’s children” — Proverbs 13:22

“Dishonest money dwindles away, but he who gathers money little by little makes it grow.” — Proverbs 13:11

Retire­ment is a big deal.

Yesterday I explained the different kinds of retire­ment savings accounts. Today, I’m going to tell you why you need to put your money into them.

Most people don’t have a retire­ment plan. I wish I was joking, but I’ve heard people say their plan for retire­ment was:

• A get rich quick scheme.
• Winning the lottery.
• Depending on social security checks.

Problem is, They are all bogus. (more…)