Bucks: Why You Avoid Your Most Important Financial Task

Carl Richards

Carl Richards is a certified financial planner in Park City, Utah. His sketches are archived here on the Bucks blog and on his personal Web site, BehaviorGap.com.

I’m not sure how it happened, but budgeting became a topic (along with life insurance) that people will do almost anything to avoid talking about.

I’ve had my own issues with budgeting, viewing it as something people do when they are overly focused on money or for people who have a difficult time being disciplined. For me, being put on a budget felt like a punishment, comparable to being grounded when I was little. So budgeting always seemed to land way down on my list of financial priorities.

But I was wrong.

I recently spent time with J.J. Sessions, a really good financial planner in Maple Grove, Minn., who changed my perspective on this issue. During our conversations, I asked him what excited him most about his work. For him, it’s having a massive impact on the cash flow of his clients, regardless of their income or net worth. He pointed out that managing cash flow (budgeting) is the key to his clients’ goals (and mine, too).

Financial goals get funded with dollars. Dollars tend to slip through our hands unless we have a system for plugging those holes. We can only plug those holes if we know they exist. So managing cash flow is not something that gets in the way of reaching financial goals; it’s the key to reaching them.

Successful companies understand that managing their cash flow is key. It’s not really any different for individuals. And no matter how stable your financial situation, I doubt there’s ever a time that it’s no longer helpful to manage cash flow.

So why does budgeting get pushed to the bottom of our financial priorities?

• Budgeting requires being disciplined by setting and tracking spending goals. But being disciplined is hard, and we tend to avoid hard things.
• Budgeting is not complex. Remember how we say that we want the simple, but still choose the complex? But it is not easy, so we keep looking for other solutions that only appear to be easier.
• Budgeting is revealing. We talked about this last week. When we start to examine how we spend our money, we learn things about ourselves, and sometimes those things surprise us. Why did we buy that new television instead of adding money to our children’s college fund? Why did we take the trip when we knew it would take months to pay off the credit card bills? When we set a budget we have to take questions like these into account.

If you’re wondering how to get started, there’s been plenty written about ways to make budgeting easier, but here are a few of the ideas that Mr. Sessions shared with me:

Automate your fixed expenses

Automate your long-term savings goals

Track and review your discretionary spending

In the end, I’ve learned that while cash flow management might be hard no matter how much I do to make it easier, the outcome is worth it. The key to accomplishing the goals I really care about (and the goals you really care about) is to spend the time and make the effort to create a real budget. The hard work will be worth it in the end.

If you’ve had success creating and sticking to a budget, what’s worked for you? And what benefits have you experienced from committing to a budget?

Article source: http://feeds.nytimes.com/click.phdo?i=89d6062fb602768ec62d03477bee3e25