Household Budget Detox
The other day, while reviewing a mortgage application, I was told by the applicant about their 30 day juice diet. My client had bought a $400 juicer and everday had 3 huge glasses of vegetables and fruit – mostly kale, carrots and apples – and that’s it; they ate nothing.
Why would anyone ever do this?
“To detoxify and loose a bunch of excess weight”, they replied.
Ok, that sounds like a good reason, but as their mortgage advisor I wanted them to take a similiar approach toward their spending habits and household finances.
So how would you detoxify your household finanances and loose a bunch of excess expenditures?
Work Within a Budget – We all have probably made one before, but have you ever “worked within one” by reviewing and updating it consistently? This means simply having a spreadsheet that you record into and review at a steady pace. You don’t have to track every detail.
Start with a flow chart to classify expenses:
- Necessity – fixed payments and not flexible. Examples are housing payment and car payment.
- Necessity but Flexible – can be adjusted. Examples are utilities and food.
- Discretionary – expenses you want to make. Examples are haircuts, supplies, dry cleaning and entertainment.
Now the hard part: start slashing items in column three and search for ways to trim column two.
Use automated tools to execute your budget.
- Use your bank’s bill pay service
- Set up automatic payments
- Use bank’s transfer service to put money into savings
- Pay with debit card so you can track expenditures
- If you get cash divide the money into envelopes and write the purpose on the envelope
Use the 10/10/10 Savings Rule on every paycheck.
- 10% saved for short term needs – vacation, birthday/holiday gift giving
- 10% saved for intermediate needs or emergencies – car trouble, loss of job
- 10% saved for retirement or real estate investment
Have an accountability partner. Accountability is in direct proportion with effectiveness and success. Use a family member, close friend or partner to back you up and help you stay on track. If your finances are more complicated, use a software program, Certified Public Accountant and/or Financial Planner.
A budget can get you there. The key to these ideas is to have a reasonable budget to begin with, sticking to the process and reviewing results. If your money problems are too serious to fit your budget seek professional help immediately by contacting a non-profit credit counselor (a church or United Way).
If the article doesn’t answer all of your questions, please don’t hesitate to drop a question in the comments, or for direct communication, please call me at 918-949-7248.