Perception is Half the Budget
By Andrea Coombes, MarketWatch
For a small subset of the population, budgeting comes naturally. The rest of us need help. Many of us start budgeting because we know we should, but we don't really want to. That's a recipe for failure.
Some 48% of consumers say they have a monthly household budget, but 31% don't always stick to it, according to a survey of 1,559 U.S. adults by HSBC's Center for Consumer Advocacy, a non-profit arm of HSBC Holdings.
And 52% say they don't have a budget at all.
"It's like a New Year's resolution. You set up a plan and you do it for a few weeks and then you say, 'I don't really care about this,'" said Richard Peterson, a psychiatrist and managing partner of Market Psychology Consulting, in San Francisco, which consults with investment firms and others on how people make financial decisions.
'Why am I doing this?'
To become more enthusiastic about budgeting, focus on what you want in the years ahead, some say. If you clarify your goals, it's easier to make the right choice when weighing instant gratification--those great shoes you want to buy --against that African safari you'd like to take next year, or funding your kids' college education.
Without goals in mind, "being on a budget seems really restrictive," said Cindy Morus, a financial coach and founder of MoneySmart Woman, a Web site selling a "money school" program, including online tutorials and telephone-support groups. Morus offers a free budget guide, too. That's available at her EasyBudgetGuide.com site.
Call in Reinforcements
Obeying a budget can be tough when you're doing it by yourself. To overcome that problem, Peterson said, bring in some outside aid, "somebody who is keeping track of you as you stick to the budget," such as a spouse or a friend with whom you trade monitoring duties.
But be careful that failures aren't punished, Peterson warned. Instead, reward success with non-monetary perks, such as making your friend dinner, or giving your spouse a massage.
Small Steps
Sometimes people jump into household budgeting whole hog, trying to create a budget that reduces their current spending by thousands of dollars.
"It's more important to do small things consistently," Morus said. She doesn't start her students on a complete spending plan until seven months into the program. At that point, "it's much easier. They're really more excited about doing it because they can find more money for their dreams," she said.
One easy small step you can take: Set up automatic payments from your checking account into a savings or brokerage account. That way, the money's not within easy reach.
"We tend to spend what we make," said certified financial planner Kevin Gahagan, a principal with Mosaic Financial Partners, in San Francisco. When that money's not within easy reach, "we adjust our lifestyle."
Plus, once you start saving just a little bit, you feel success, Peterson said. "You gain confidence in your ability to be disciplined."
More Money, Not Less
Another small step: Take larger sums out of the ATM. "When you pull out small sums, $20 here, $40 there, you don't think about it. You just spend it," Gahagan said.
If you take out $200 or $400, "now you're pulling out a sum that's noticeable," making you more conscious of where it goes.
And, you can also try throwing extra cash, even coins, into a "dream jar," Morus said. Then, as they shop, "people start thinking, 'Well, I could put that money in my dream jar.'"
Another idea: Every time you're in the grocery store check-out line, remove one item from your basket. If it's a $3 box of cookies, then take that $3 and put it in your dream jar. But, be sure to actually put that money in the jar. "Otherwise it gets spent on something else," Morus said.
Also, every month, avoid impulse purchases by creating a spending plan for the month ahead. For instance, if you're a parent, now's the time to figure out how much you want to spend on back-to-school shopping in August.
Tools to Fit
Once you're ready to create a complete household budget, you'll need to choose a tool that works best for you. For some, that's the envelope system, where you divvy up your paycheck into different envelopes for each expense.
"Other people may want to use a budgeting program, such as Quicken," said Gerri Detweiler, president of Ultimate Credit Solutions Inc. in Sarasota, Fla.
Still others like an online budgeting tool, she said, like Mvelopes.com, which is a computer-based version of the envelope method.
Whichever tool you use, budget enough time: Give yourself four to 10 hours to set up that first complete household budget, Gahagan said.
For a small subset of the population, budgeting comes naturally. The rest of us need help. Many of us start budgeting because we know we should, but we don't really want to. That's a recipe for failure.
Some 48% of consumers say they have a monthly household budget, but 31% don't always stick to it, according to a survey of 1,559 U.S. adults by HSBC's Center for Consumer Advocacy, a non-profit arm of HSBC Holdings.
And 52% say they don't have a budget at all.
"It's like a New Year's resolution. You set up a plan and you do it for a few weeks and then you say, 'I don't really care about this,'" said Richard Peterson, a psychiatrist and managing partner of Market Psychology Consulting, in San Francisco, which consults with investment firms and others on how people make financial decisions.
'Why am I doing this?'
To become more enthusiastic about budgeting, focus on what you want in the years ahead, some say. If you clarify your goals, it's easier to make the right choice when weighing instant gratification--those great shoes you want to buy --against that African safari you'd like to take next year, or funding your kids' college education.
Without goals in mind, "being on a budget seems really restrictive," said Cindy Morus, a financial coach and founder of MoneySmart Woman, a Web site selling a "money school" program, including online tutorials and telephone-support groups. Morus offers a free budget guide, too. That's available at her EasyBudgetGuide.com site.
Call in Reinforcements
Obeying a budget can be tough when you're doing it by yourself. To overcome that problem, Peterson said, bring in some outside aid, "somebody who is keeping track of you as you stick to the budget," such as a spouse or a friend with whom you trade monitoring duties.
But be careful that failures aren't punished, Peterson warned. Instead, reward success with non-monetary perks, such as making your friend dinner, or giving your spouse a massage.
Small Steps
Sometimes people jump into household budgeting whole hog, trying to create a budget that reduces their current spending by thousands of dollars.
"It's more important to do small things consistently," Morus said. She doesn't start her students on a complete spending plan until seven months into the program. At that point, "it's much easier. They're really more excited about doing it because they can find more money for their dreams," she said.
One easy small step you can take: Set up automatic payments from your checking account into a savings or brokerage account. That way, the money's not within easy reach.
"We tend to spend what we make," said certified financial planner Kevin Gahagan, a principal with Mosaic Financial Partners, in San Francisco. When that money's not within easy reach, "we adjust our lifestyle."
Plus, once you start saving just a little bit, you feel success, Peterson said. "You gain confidence in your ability to be disciplined."
More Money, Not Less
Another small step: Take larger sums out of the ATM. "When you pull out small sums, $20 here, $40 there, you don't think about it. You just spend it," Gahagan said.
If you take out $200 or $400, "now you're pulling out a sum that's noticeable," making you more conscious of where it goes.
And, you can also try throwing extra cash, even coins, into a "dream jar," Morus said. Then, as they shop, "people start thinking, 'Well, I could put that money in my dream jar.'"
Another idea: Every time you're in the grocery store check-out line, remove one item from your basket. If it's a $3 box of cookies, then take that $3 and put it in your dream jar. But, be sure to actually put that money in the jar. "Otherwise it gets spent on something else," Morus said.
Also, every month, avoid impulse purchases by creating a spending plan for the month ahead. For instance, if you're a parent, now's the time to figure out how much you want to spend on back-to-school shopping in August.
Tools to Fit
Once you're ready to create a complete household budget, you'll need to choose a tool that works best for you. For some, that's the envelope system, where you divvy up your paycheck into different envelopes for each expense.
"Other people may want to use a budgeting program, such as Quicken," said Gerri Detweiler, president of Ultimate Credit Solutions Inc. in Sarasota, Fla.
Still others like an online budgeting tool, she said, like Mvelopes.com, which is a computer-based version of the envelope method.
Whichever tool you use, budget enough time: Give yourself four to 10 hours to set up that first complete household budget, Gahagan said.
