Category Archives: Personal Finance

Personal Principles and Goals

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This is the second exercise in a series designed to walk you through an entire financial plan.  The exercise is embedded in an Excel spreadsheet you can download and save for personal use.  You can find the backdrop for the exercise HERE or just jump right in with the instructions given below:

Deliberate over that which you want to mark your life.  Write down a word or phrase that will be your Personal Principle—your value—and then give a sentence or two of explanation.  These are yours, but I encourage you to share them with a good friend and your spouse, if applicable.  (One of the nuanced difficulties and benefits of marriage is the necessity of allowing your Personal Principles to be folded into those of your spouse.  If your spouse is a willing participant, encourage him or her to complete this exercise as well to develop a set of Unifying Principles for your family.)

You might benefit from reviewing Ben Franklin’s list of personal principles—his “Thirteen Virtues.”  The goal is not to make Franklin’s your own, but to be informed by his intellect, entertained by his wit and inspired by his wisdom:

Your GOALS—especially your financial goals—may be better informed when you complete this entire process, but practice now writing down a few goals that meet the specific, measurable, attainable, and meaningful criteria, then come back to them after completing the full plan series.  Financial goals will then be broken down into specific steps to meet those goals in your Action Plan in the final step.

Your Personal Money Story

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This is the first exercise in a series designed to walk you through an entire financial plan.  The spreadsheet is embedded in an Excel spreadsheet you can download and save for personal use.  You can get the background for this exercise in my Forbes post HERE or just jump right in with the instructions given below:

Write your own Personal Money Story.  What is the earliest memory you have about money, and how old were you?  For many, it will involve some combination of a piggy bank and an allowance or birthday gift somewhere between ages 3 and 6.  Then, rate this experience numerically between +10 for a great experience and –10 for a scarring memory.  Continue this pattern, marking all of the notable experiences you had with money—good and bad—throughout the course of your life.  As you fill in the columns in chronological order, you’ll see the graph begin to populate.

As you reflect on the completed exercise, what story does it tell?  Is it notably fortunate, happy, tragic or sad?  Is it relatively level or particularly volatile?  The answers to these questions might just explain the health of your 401k or your burdensome credit card balance.

As you develop your own realizations about your money beliefs, consider sharing your story with a select family member or friend, especially a spouse or loved one upon whom your Personal Money Story might have a meaningful impact…and suggest they do the same.

The Real Point Of Financial Planning

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Whether you’re a do-it-yourself-er or working with a professional financial planner, the real point of financial planning is often obscured in a process so deep and wide that it’s easy to get lost.  The most prominent mistake in financial planning is to allow the process to be reduced to an exercise in which success is solely derived from a single number—your net worth, today and projected into the future.  In truth, the real point of good financial planning isn’t to have more money, but a better life.

One may argue this point suggesting that more money is simply more…better, that few financial plans have suffered from a surplus of financial resources.  This is true at a moment in time, but the problem with making “the number” the ultimate goal of a financial plan is that it steers behavior to get there.  But that is the point, many of my esteemed colleagues may insist, that we subordinate our todays to our tomorrows in hopes of securing comfort and prosperity in both.  Then I ask you this:

Is comfort and prosperity the chief end of life?

I’m privileged to teach the Fundamentals of Financial Planning at my alma mater, Towson University, and every semester I pepper the class on the first day with a barrage of questions, among them, “How many of you are HERE because you WANT to be here?”  The average positive response is 10% of the class.  Most of them are accounting majors, so I engage them in discussion to determine WHY they chose that course of study.  The primary reason given is to secure comfort and financial prosperity in life.

“So you’ve chosen,” I ask, “to dedicate four-to-six years of your life becoming educated sufficiently to spend the bulk of your waking adult hours thereafter in a job you don’t particularly love to hopefully secure financial prosperity?”

Unfortunately, too many financial planning processes look just like this.  They begin with numbers and back into the actions—and life—necessary to achieve those numbers.  Planners may justify this by disclaiming that the client dictated the data (in the questionnaire designed to force the client into a box that can be managed by the planning software du jour).  The recommendation is simply the output.  But that’s because the process is backward.

It should start, instead, with three simple questions:

  1. WHO are you?
  2. WHAT do you want to be about?
  3. And, WHY?

Then and only then should the numbers come into play.  And the numbers shouldn’t exist to extinguish the who, what and why, but to support them.  If I’m really a good teacher, I may have to recommend you consider an alternative educational or vocational path.  If I’m really a good planner, I may have to recommend a course of action that could have a negative impact on your bottom line—today and in the future—but which leads to a better, more fulfilling life.

At best, the benefit of financial planning is minimized when reduced solely to a process intended to give you more money, today and in the future.  At the very worst, such a process could temporarily or permanently derail your entire plan for life.

Your financial plan must submit to your plan for life.

In the coming weeks, I’m going to take you on a blog journey through an entire financial plan, including an examination of topics you’d expect—like how to judge your investments and determine how much life insurance you should have—as well as many you might not anticipate—like how to create your own Personal Money Story and articulate your Personal Principles.  We’ll discuss everything from homeowner’s and disability income insurance to navigating death and taxes.

Each week’s blog post will be on a different topic, building on the last, and will include online exercises you can download (at no cost) for your own personal use in developing your financial plan.  It’s not designed to supplant the intangible benefits of a personal financial planner, but to be a starting point, a supplement and/or a second opinion.  And throughout, we’ll work to maintain the real point of financial planning—a better life.

The Most Important Love Letters You’ll Ever Write

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You don’t want to write estate planning documents because you don’t love meditating on the prospect of your own death.  Sure, you might think you’re mature enough to face that eventuality and plan responsibly to care for anyone or anything you might leave behind.  But even if you’re perfectly cognizant of your own mortality and confident of a secured eternity north of the border, you may not rank a discussion on splitting up your worldly assets and responsibilities with an attorney particularly high.

But your estate planning documents aren’t for you.  Think of them as the most important love letters you’ll ever write.  Find inspiration in knowing that you’re caring for the people and causes you love, even if you’re not here anymore.

The most important recommendation in every financial plan is successful completion of thoughtfully prepared estate planning documents.  So, no matter your age (unless you’re still a minor), marital status or net worth, you need to be considering how to write your WILL, DURABLE POWER OF ATTORNEY and ADVANCE DIRECTIVES.

Here is an estate planning crash course in the form of three videos addressing each primary document in under 90 seconds.  Enjoy!  (Then, act.)

 How to Create a Will in 90 Seconds or Less

 

How to Create a Durable Power of Attorney in 90 Seconds or Less

 

How to Create Advance Directives in 90 Seconds or Less

Commercialism In Valentine’s Day

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So a couple days ago, my beautiful wife, Andrea, posted a seemingly random thought on Facebook:

I know I am going to sound like a grumpy old lady…But I don’t actually like Valentine’s Day.  It’s so fabricated and commercial.  Too much pressure for me ;-)

Thanks to direct access to this particular source, I was able to delve further.  She told me, “It’s hard to feel romantic when everyone is trying to do the same thing.  It feels forced.”  What makes it feel forced, she concluded, was the overly commercial aspect of it.

Speaking of commercials, did you happen to catch the Teleflora ad during the Super Bowl?  My reaction to supermodel Adriana Lima’s floral sales pitch was to awkwardly preoccupy myself with the chips and dip to hide the spontaneous nervous laughter that erupted at its conclusion, as Ms. Lima instructed my gender: “Guys, Valentine’s Day’s not that complicated.  Give, and you shall receive.”  Feeling the stares of all the women at a small Super Bowl gathering, I attempted to declare, foolishly, with as straight a face as humanly possible: “That commercial was…um…effective.”

The ladies present gave me grace and laughed at my helplessness, but I can’t but wonder whether the forced romanticism of which Andrea spoke wasn’t perfectly personified in Teleflora’s wanton objectification of women.  (For a discussion on the wanton objectification of MONEY itself, check out my post on Forbes this week, “For Love, Not Money.”)  After all, my guess is that Teleflora didn’t spend $3.5 million to stir a healthy discussion over the inherent self-interest in gift-giving, but to sell a boat-load of roses!

Teleflora wants guys to give flowers, and there is no question what they implied guys should expect to receive.  So, we give this and we get…that.  Sounds much less like a gift and more like a transaction.  A transaction no respectable man should be willing to make.  A transaction that strips every ounce of romanticism out of Valentine’s Day, or any occasion for that matter.

A gift from a heart of love simply isn’t a gift unless it’s given without reciprocal intent.

It’s no wonder that the results of my unscientific poll, based on Andrea’s and my Facebook and Twitter comments and questions, revealed that 60% of respondents share generally negative sentiments about V-day, with an additional 20% blithely apathetic.

While I recognize all the reasons for turning our back on V-day as valid, my not-yet-completely-extinguished optimistic streak inspires me to redeem, instead of discard, this beleaguered day.  My friend and colleague, Joe Pitzl, put it well in his poll response:

Valentine’s Day has become a commercialized “Hallmark holiday,” but that doesn’t mean you have to let that destroy the spirit of what it really stands for.  Our society has effectively redefined celebrating a holiday (and why we celebrate it) as spending money on stuff.  We ought to remember WHY holidays exist in the first place…and pausing from our busy lives to simply celebrate our love for one another (whether you spend anything or not) is a great a reason to celebrate as any!

What do you think?  Are we capable of redeeming Valentine’s Day from its commercial, transactional devolution?

Why We Do Dumb Things With Money

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“How could I be so stupid?”  Maybe you’re looking at a bulging credit card bill after over-spending during the holidays, just hoping your tax refund is enough to pay it off.  Or maybe you’re looking at a budget that simply won’t balance—for the 77th consecutive month—wondering how you made it this far in life without being able to master the simple math of addition and subtraction. 

Why is it that informed, educated and even brilliant people can be so dense when it comes to basic matters of personal finance?

I’m reading a book called The Checklist Manifesto by Atul Gawande, based on his fascinating article, “The Checklist,” in the December 2007 edition of The New Yorker.  On his way to making a compelling case for the use of checklists to ensure accuracy in even the most multifaceted procedures—like emergency room surgery or skyscraper construction—he gives us some insight into why we’re capable of doing dumb things in seemingly simpler processes.  In his words:

Two professors who study the science of complexity—Brenda Zimmerman of York University and Sholom Glouberman of the University of Toronto—have proposed a distinction among three different kinds of problems in the world: the simple, the complicated, and the complex.

Zimmerman and Glouberman give us a tangible example of each type of problem.  Simple is to baking a cake from a mix as complicated is to sending a rocket to the moon.  The latter requires “…multiple people, often multiple teams, and specialized expertise.”  But once you’ve marshaled the necessary manpower and know-how to send a rocket to the moon, the exercise can be successfully repeated.

This is not the case in complex problems, however.  The example they give for a complex problem is raising a child.  “Expertise is valuable but most certainly not sufficient.  Indeed, the next child may require an entirely different approach from the previous one.”  As a parent of two, this news was both heartening and frightening.  But it also helped me realize something groundbreaking, at least to me:

While many matters of personal finance seem so simple on their face, they’re actually quite complex…because WE’RE complex.

Even as a single person with no dependents or pets, our innate proclivity for self-deception is remarkable.  But within the context of a couple or family, it’s easy to see how the “simple” discipline of cash flow management, for example, can become quite complex.

Further complicating the problem is that most areas of personal finance require perpetual decision making, in which each individual decision to save, spend, buy, sell, re-allocate, contribute, distribute, insure, reduce coverage, file, expense, deduct, bequeath, endow, receive or disinherit is its own fertile ground for success or failure that could compound positively or negatively to impact the whole!

So let’s all enjoy a collective “WHEW!” as we momentarily enjoy the fact that making mistakes with money doesn’t mean we’re a complete nincompoop.  Of course, this is an explanation, not an excuse.  We’re still responsible.  Here are three ways we can all keep our financial decision making as smart as we are:

1)     Be cognizant of things financial.  Be present and deliberate when dealing with your money.  Keep these topics at front of mind by reading a good financial blog or two (ha, ha).  And consider reading my friend and colleague, Carl Richards’, new book, The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money.  (It’s the only financial book I know of that is strewn with pictures!)

2)     Develop good habits.  We often need to force ourselves to be cognizant because personal finance either bores us or is loaded with self-deception.  The development of good habits, beginning first-and-foremost with a functional cash flow system, will help us develop the behavior we’d prefer.

3)     Be accountable to someone or something.  Some are willing and able to develop their own system to maintain accountability, but for many, a healthy relationship with a professional financial planner is the key.  In my Forbes post this week, “Hey Financial Planners, Do Your Job!” I gave advisors a gentle nudge, encouraging them (us) to make financial planning a simpler, more client friendly process that eliminates complexity instead of creating it.

What are some other ways you’ve been able to keep from making dumb financial decisions in your life?

Too Complex For Their Own Good?

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This week on my Forbes post, “Don’t Outsmart Yourself Financially,” I took issue with an article written by Nobel-winning economist, Paul Krugman, for his rationalizing of the enormous debt load of our country.  But while economists have and will wax eloquent on the past, present and future utilizing brilliant theories well beyond the bounds of common sense (and often practical application), we have no such allowance in the realm of personal finance.  Indeed, YOU SHOULD NEVER PURSUE A STRATEGY YOU CAN’T UNDERSTAND.

Here are a collection of financial strategies that sound impressive but may be too complex for their own good:

  • Equity Indexed Annuities—EIAs are actually fixed annuities, but if you ask one of their passionate purveyors[i] how they manage to offer market upside with none of the downside, I hope you’ve set aside some time because you’re in for a very long conversation…if the agent even knows enough about their inner workings to  educate you.  In short, insurance companies buy bonds with your investment and use the interest payments to purchase stock options to materialize the upside of the stock market.  They hedge their bets—I mean, positions—by handcuffing you with some of the biggest (7%, 9%, even 12% and higher) and longest (10, 15 or even 20 years) surrender charges in the business.  Like too many financial products, these instruments are sold, not bought, and I don’t recommend tying up your money in one of these financial experiments.
  • Life Insurance As Primary Retirement Vehicle—There’s a wow-inducing sales system (called the LEAP system) that was built for life insurance agents seeking to increase their sales in one of the best-paying commission products on the market, permanent life insurance (whole life, variable life and universal life).   After an hour of mind-numbing chart-flipping, you’ll be ready to divert your 401k savings into a brand new life insurance policy![ii]  But unless you make over $250,000 per year or have millions in net worth, you simply don’t need to worry yourself with the variables in permanent life insurance.
  • “Option Arm” Mortgages—The landscape of mortgage products has dwindled significantly from the pre-crash days when you could literally pick the payment on your mortgage in the now infamous option arm mortgages.  A mortgage broker in Pennsylvania at one point pitched me on a joint collaboration in which I would lend financial credence to his recommendations for clients to take on these crazy mortgages and they would, in turn, invest all the extra money they didn’t have to pay towards their mortgage in accounts I would manage.  I laughed at first, thinking he was kidding.  Then I realized he wasn’t.  Especially with rates as low as they are today, there are very few reasons to take on any mortgage other than a fixed mortgage, but there is NEVER a reason to take on a mortgage that increases your debt instead of paying it off.
  • Exchange Traded Funds—This one may surprise you, and I should be quick to point out that ETFs can be very wisely and properly utilized in a diversified investment strategy.  But you’d better fully understand what you’re buying.  Much like a mutual fund, an exchange traded fund is a single investment representing a basket of securities.  For example, you can purchase an ETF that will track the S&P 500 index or commodities like gold or oil.  But the question remains, what exactly is inside of the ETF?  Sometimes it is actual investments, (like stocks in gold mining companies, for instance) but often the underlying properties in an ETF are derivatives—options or futures—and subject to market forces beyond the commodity or index itself.  If you don’t understand how the investment is built, you may be in for a surprise when you see how it actually reacts to market stimuli.

There are many other examples out there, and I’d love to hear what you’ve run into in your financial journey.  Please share your good or bad experience, or ask any questions, in the comments section!

[i] Why so passionate, you ask?  These products have some of the biggest commissions in the business.  Up to and over 12%!

[ii] I worked with one agent in a prior professional life who regularly pitched a “Roth Look-A-Like,” an alternate retirement savings vehicle designed to give you all the tax advantage of a Roth IRA, and more…except that it was nothing more than a whole life insurance policy.  I saw one unfortunate 20-something guy who wasn’t even married and had no dependents buy a look-a-like when his money would’ve been better served in a true Roth.

The Victory In Failure

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This past weekend, my seven-year-old son, Kieran, got beat up.  Worse yet, I was forced to stand by powerless, watching the whole thing, unable to intercede on his behalf.  Thankfully, everything’s fine.  He sustained no lasting physical injuries although it may take a while for him to recover emotionally…from his very first official wrestling tournament. 

Believe it or not, at seven he’s two-to-three years behind most of the other kids his age, so he spent the majority of his three matches getting his 60 pound frame slammed and twisted into the mat.  After spending weeks building his skills and confidence, he realized within 10 seconds into the first bout that he was outmatched.  At the end of the second (of three) 60 second periods his disappointment crescendoed and erupted into tears, doubling his embarrassment.  He spent the third period struggling to keep from getting pinned with tears streaming down his face.

Personal Failure

The worst part was that he still had two matches to go, and having seen the other two kids wrestle already, we knew it wasn’t going to get any easier.  He wanted to quit and go home.  What was I to do?  Parents in the movies always have the right thing to say, but I was searching and finding nothing; that is, until I remembered Tim Tebow.

We live in Baltimore, and that means we root for two teams—the Ravens, and whatever team the Steelers are playing—but over the course of this season, our household also admittedly got wrapped up in Tebow fever.  We’re suckers for underdogs and comebacks.  But what impresses me the most about Mr. Tebow is not his ability to win, but his grace in failure and his impervious defense against capitulation.  Whether deified in victory or discarded in defeat, he seems to maintain the same sincere posture of positivity, even after Denver’s 45-10 loss to the Patriots.

Kieran indeed lost his final two matches, but got successively stronger in each.  In the third, his dedication even earned him a couple points against a far superior opponent and a small cheering section of coaches, parents and teammates anxious to affirm his courage in the face of sure defeat.  He carried himself with respect and a sincere smile on his face to the fourth place (out of four) podium.

Financial Failure

Kieran’s story has little to teach us about money, but much about failure.  In no period since the Great Depression has financial failure been so widespread and felt with such impact.  There are those, like my son, who did everything they could to improve their chances of success, but lacking a certain level of experience or knowledge found themselves pinned down by the weight of decisions that turned on them.  Even many of those eminently qualified and gifted—like my friend and financial planning colleague who bared his soul sharing the story of his real estate blunders during the crisis—were humbled in defeat.

Losing your home, losing your job, or losing your ability to retire due to market losses is harder to handle than losing a football game or a wrestling match.  Failure of this magnitude can be absolutely crippling.  But it is, indeed, possible to gain something from losing.

The Depression Baby generation became the best savers in U.S. history (see Beyond Our Means, Princeton University Press, 2011).  Foreclosure and bankruptcy have spawned inspired financial counsel that has changed the lives of millions for the better (see Dave Ramsey).  Many job losses have imbued the aggrieved with enough frustration towards corporate hierarchy that they’re becoming our next wave of innovative entrepreneurs (see report by the Kauffman Foundation).  And market losses have encouraged the first generation of early retirees to pursue meaningful vocations they’re happy to perpetuate over occupations they were racing to end.

I’d love to know what you have gained through loss or failure, so please share in the comments section if you’re willing.

(This wasn’t the only emotional experience I had with Kieran this past weekend relating to sports and somehow, in my mind, things financial.  I wrote about the other in my Forbes blog this week—you can read “What Do NFL Playoffs And Money Have In Common?” by clicking HERE.)

10 Ways Budgeting Saved My Marriage

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Eleven years ago, my wife and I sat across the table from an experienced married couple squirming in their seats uncomfortably as though they feared we were about to deliver some terrible news.  But the source of their discomfort was the bomb they were about to drop on us.

You see, we were not yet married, but engaged, and the couple across the table was our mentor couple in our pre-marital class.  Upon review of our personality profiles and piles of personal baggage, they felt it their duty to discourage us from further pursuing the sacred vows of matrimony.  They’d never seen a hopeful couple more innately disparate, more inevitably destined for failure. 

We are indeed vastly different, but one thing my wife, Andrea, and I share in common is a penchant for resisting authority.  So with the blessing and support of family and friends, I’m thrilled to report we’ll be celebrating our eleventh anniversary this April with our two wonderful boys, Kieran and Connor, ages six and eight.

We have never forgotten, however, the well-intended admonishment of our mentor couple; indeed, we see much of life from vastly different perspectives, foremost among them our view of things financial.  And apparently, we’re not alone. Over 50% of marriages end in divorce.  Over 50% of those splits cite financial disputes as the primary reason for the break-up.

100% of marriages deal with money as a daily necessity.


This thought occurred several times when preparing my recent posts on budgeting on Forbes.com (How To Spend $1 Million At Starbucks) and TimMaurer.com (A Burdensome Yoke…Or A Path To Peace?).  It struck me that budgeting ranked right up there with prayer and counseling as a precious few factors that have helped keep us together.  Here are the top 10 ways budgeting has saved, and continues to save, our marriage:

10)  Budgeting forces us to collaborate.  It seems that as parents of young children, the level of commitments between work, school, church, sports and the arts leaves us functioning more as independent business partners than spouses.  We’re almost always in short supply of adult conversation and genuine collaboration, and (strange as it may seem) budgeting gives us the context for both.

9)     It offers healthy accountability.  Ronald Reagan famously said, “Trust, but verify,” and while 100% verification of trust in our marriage would be stifling, we’ve found periodic accountability to be a healthy way to build faith and trust in each other.  Our joint budgeting effort means all of our expenditures are accessible to the other.  Scrutinizing every penny spent would be unfair (a-hem, note to self), but knowing everything is visible is likely to encourage us each to spend more responsibly.

8)     It humbles us.  I’ve not found a more helpful tool in the pursuit of a successful marriage than humility, and since the use of money is so pervasive in our lives, small mistakes are the norm, not the exception.  Rarely a weekly cycle goes by in which we don’t each humbly acknowledge that we erred in some capacity, humbly submitting our mistake to the other.  And of course, a good budget is designed to withstand these small mistakes.

7)     It provides an opportunity for reconciliation.  The prevalence of small errors in our budgeting, however, provides fertile ground for a destructive tendency: that we’d develop a scorecard, real or implied, and shame the more regular offender (because there normally is one in most households).  So for us it’s very important that a humility ground-rule is established: Any time an offending spouse submits in humility to an irreversible mistake, forgiveness and reconciliation is the only way forward.

6)     It gives us reason to celebrate.  For each mistake, there are several successes in each budget cycle.  The long-term success of our marriage is often built on a series of small victories, and we should never withhold an affirmation for completing a project under budget or enjoying the security of a buffer when an emergency arises.

5)     It cuts down on surprises.  So many aspects of our life are subject to variability and volatility.  We can’t necessarily reduce the number of those surprises, but we can certainly reduce their negative impact by being financial prepared for them.  Financial strain, and especially shock, pushes many marriages to (and over) the brink.

4)     It makes us better parents.  All of us parents could probably agree that it’s possible to spend too little OR too much on our children, right?  We’re responsible to determine what the right levels of spending are for our children, and budgeting allows us to deliberately set aside appropriate levels of funding for education, clothing, sports, music and fun.

3)     It shows our dependence on each other.  Andrea and I do think very differently, and this inevitably leads to divisive thoughts like these: “You know, I think I could do this better on my own!”  But this decries the very essence of marriage as an institution in which each partner’s primary objective is to serve the other.  The process of budgeting puts our (literal and emotional) dependence on each other on full display.  That makes us vulnerable, but it’s good.

2)     It preserves a healthy level of independence.  The income production in most households is almost never perfectly equitable.  Andrea sacrificed a successful career in the financial industry when she chose to stay home with our young children.  This has been an incredible blessing in our family, but it’s also a breeding ground for insecurity and manipulation as I might have a tendency to overestimate my contribution to the family’s finances and underestimate Andrea’s.  It is imperative, then, that part of our budget is the preservation of a certain amount of financial independence for each spouse.  To offset this income inequity, we’ve established “His and Hers” accounts with unilateral privileges.  Many shun budgeting as too restrictive, but properly implemented, it actually gives us room to breathe financially, and we all need room to breathe.

1)     It preserves date night!  One of the interactions I’ve enjoyed most throughout my career was with a client who is a generation or two my senior.  He and his wife have five kids(!) and appear to be more in love today than they’ve ever been.  So at the close of one meeting, I got up the nerve to ask this gentleman what his secret to marriage and parenting was.  His answer?  They never fail to set aside time—and money—for each other as a couple.  He made a convincing case that we are better parents when we deliberately setting aside time to be together, away from the kids, and not just for date nights, but also long-weekends and even week-long vacations to remind ourselves that before we were parents we were lovers.  This proved especially difficult for Andrea and me because by the time we got to the end of most months, we’d already spent our discretionary cash on the rest of life and felt like we were taking funding away from other things to line-up a babysitter and enjoy a night or weekend out.  So now, much as we have preserved His and Hers accounts, we also have an Ours account.

Budgeting is not the slightest bit romantic, but it has the ability to promote and preserve the romance in our marriages and keep us on the right side of that daunting 50% divorce statistic.  There are as many good ways to manage this process as there are couples, and I’d love to hear some of the ways budgeting has helped preserve YOUR marriage also, so please share your story in the comments section!

A Burdensome Yoke…Or A Path To Peace?

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Well, it wouldn’t be the New Year if we weren’t reminded that one of the top resolutions that will be made and inevitably abandoned is financial in nature.  “Improve financial condition” is once again the number two resolution for 2012 in the annual Franklin Covey New Year’s Resolutions study, and the only surprise is that it’s not number one!

But no matter what year I’m asked the question, “What’s the most important thing I could do to improve my personal finances?” the answer is never going to be about tactical asset allocation, navigating the alternative minimum tax or conducting a Roth IRA conversion.  Regardless of your income, your net worth, your age or employment status, the clearest determinant of a successful financial plan for ALL of us is the implementation of an effective cash flow mechanism, or its less sexy if not diminutive synonym—the budget.

So in my first Forbes post of 2012, I shared the shocking story with which you may already be familiar, about my affluent friend who found himself on a path to spending over $1 million at Starbucks, to rebut the common misconception that rich people don’t have to budget.  But here I’d like to address the more honest, unspoken question that I believe leaves most people among the ranks of the NON-budgeters:

ISN’T BUDGETTING JUST AN ANNOYING, BURDENSOME YOKE?  ANOTHER TO-DO WITH LITTLE MORE TO OFFER THAN A REMINDER THAT I’M FALLING SHORT?

The short answer: NO.

The less short answer: MAYBE.

Budgeting may indeed be little more than a burdensome yoke destined to be cast off if you don’t dedicate yourself to it wholly.  For example, if all you ever do is track your spending after the fact, which can be quite depressing.  (“Yup, I spent more than I should’ve…again.”)  Many mistake a monthly review of spending with a glance at the bank and credit card statements for budgeting, but a spending review is barely the beginning of a genuine cash flow system.  The process is really about setting forth a desired level of spending for the future and tracking spending at frequent enough intervals that your course can be reasonably adjusted.  A half-hearted effort at budgeting is likely to net you even less-than-half the benefits.

Although I recommend you find the rhythm that works best for you, my preference is a monthly budget that is reviewed weekly.  Each of my budget categories—food, housing, charity, entertainment, and many more—are given a monthly allotment and then we (yes, if your household is a we, it’s almost impossible to make budgeting work solely as an I) review spending weekly and make course adjustments for the month’s remainder.  If you’re able to maintain a weekly rhythm of review, the process is relatively painless in the short run and you’ll save yourself more heartache (heartache is not an overstatement for many people) than you could imagine in the long run.[i]

But what really takes budgeting from routine to revelation isn’t merely mastering the mundane, but planning for the unexpected…with margin.  With the exception of bills that are identical every period, each variable budgeting category should have a built in buffer designed to weather slight variance.  Then you should also have a separate miscellaneous buffer category for emergencies, auto repairs and other occasions that fall outside the bounds of your expectations.

You’ll fall head over heels in love with the boring process of budgeting when the unexpected becomes inevitable, but you’re prepared in advance.  No wondering where the money’s going to come from.  No turning to debt.  No personal financial crisis.  Just peace.

Speaking of love and budgets, stay tuned for an upcoming post on How Budgeting Saved (And Continues To Save) My Marriage.

Wishing you personal and financial peace in 2012!

[i] The not-so-secret to any habit I’ve ever maintained successfully is that it has to be in some way enjoyable, so every Saturday I take a cup of green tea upstairs with the wooden box dedicated as the receptacle for our household receipts to my office, choose some good music to suit my mood and run the numbers.  WHAT WORKS WELL FOR YOU?