Achieving financial well-being — Budgeting: investment with returns

This is a poor time, some might say, for a feature article on money management and budgeting, just as the holiday gift-buying season looms ahead. Who wants to think about controlling spending this time of year?

Yet viewed from another perspective, there is no time like the present. Christmas, of all seasons of the year, should bring residual joy, and it can be hard to feel joyous with the burden of holiday debt lasting far into the new year.With a bit of courage, foresight and tenacity, you can start today to be in financial control and enjoy the rewards that come therefrom.

Not the least among those rewards, according to D. Paul Gardiner, chairman of the Accounting Department at LDS Business College in Salt Lake City, are health and marital stability.

"Often, health problems are related to stress, which can be directly attributed to the control of our finances," he said. "It's interesting the lengths to which people will go to preserve their health, yet they neglect the very thing that could prevent a lot of unhealthy stress, namely money management."

And he said money is probably the chief source of marital conflicts, as Church leaders have pointed out.

Other rewards that come from careful budgeting include more restful sleep; self-reliance during emergencies; having the means for adequate health care, insurance coverage and educational opportunities; eventually some measure of financial independence giving one the freedom to serve others through missions, Church service or other opportunities; and enhanced self-esteem that comes from feeling in control.

With these rewards understood, why do not more people budget?

"Often, they don't know how," Brother Gardiner said. "The fallacious assumption is that people know how to budget. Subconsciously or not, they don't really believe they can pull it off. So it doesn't get done. I think if you took a cross section of the population it would be surprising how many fit that category and how few really do adequate budgeting."

Like a wrecking ball that razes a building, sometimes a single unexpected event can demolish a budget. But, Brother Gardiner emphasized, budgeting is not predicting the future.

"We're going to have things occur that are unplanned. We just need to know how to handle those eventualities when they happen."

The key is not to judge oneself as being a bad person when the budget is exceeded, he explained. "The key is timing. Be aware that you are going over budget in a specific category at the time you are doing it. Then you can make adjustments accordingly."

Another reason people do not budget is that they are afraid it will entail a lifestyle change, he said. "And actually, it has to to be successful."

Like other aspects of life, budgeting requires closing the gap between one's ideals and one's behavior, Brother Gardiner noted. But a clear vision of the resulting rewards can be a motivator.

In the marital partnership, he said, a deterrent to budgeting may be fear on the part of one or both partners of " 'fessing up" or being honest about how much is being spent in certain areas, he added.

The objective of a budget is to control spending, and the biggest enemy of that is impulse buying, Brother Gardiner said, the urge to spend money with no other forethought than whether or not there is a plus-balance in the checking account.

"In reality, that money in the checking account may already be committed to other areas," he said, "so if you buy on impulse, you may be overspending without realizing it."

The need to control one's spending is always present, regardless of income size, he pointed out. A corollary to that principle is that it is just as possible to have peace of mind with a small income as it is with a larger one. Indeed, Brother Gardiner said, many wealthy people attained their fortunes not through inheritance but through careful control of spending over time.

The best budgeting methods have a number of common elements, he pointed out. (Please refer to accompanying box giving tips for successful budgeting.)

"You have to have some approach to balancing, seeing to it that your expenditures are equal to or less than your available income."

The best systems differentiate between fixed, or "no-choice" costs (home mortgage or rental, loan repayments, etc. ) and discretionary, or "in-your-control" expenses (food, clothing, gifts, vacations), he said. The latter are the ones that may be adjusted to bring a budget into balance.

"You can take more drastic steps - consolidating debts or selling things of value - but most people do not need to take the drastic steps," he said. "And it would surprise people, even those who consider themselves in deep trouble, what actual control they can have."

Where spouses jointly budget household income, a good system divides the spending responsibility between husband and wife. For example one spouse may be in charge of spending on clothing for the children and himself or herself, while the other may be in charge of spending on groceries or household maintenance. Such an arrangement requires careful attention to productive, non-judgmental communication and joint planning.

Most important, according to Brother Gardiner, is a way to track spending. "A budget is not historical," he said. "If you wait for the end of the month and then record everything to see what you've done, you've lost the major benefit of budgeting. The key is knowing at the point of purchase where you stand. You subtract the cost from the remainder in a particular category, then you immediately know what the impact is on that category."

For a budget to work, credit cards must be treated as if each charge was written on a checking account, he said. "Any time you charge a purchase on a credit card, make a reduction from the budget category as if you had actually spent cash. Otherwise, you find yourself building debt, not decreasing it."

What about reducing existing debt? Brother Gardiner recommends the "debt-elimination calendar" shown in the pamphlet One for the Money by Elder Marvin J. Ashton of the Council of the Twelve (Distribution Center Catalog No. 33293). In Elder Ashton's system, debts are ranked from the shortest payback period to the longest. As the shortest one is paid off, the monthly payment for that debt is applied to the next shortest and so on until all debts are eliminated.

Saving needs to grow incrementally, he said. It may start with 1 percent of the household income per month. "And then it might go to 2 percent. But once you get into the momentum of it, it becomes easier and easier, and then it's surprising what you can accumulate."

A side benefit of building savings is that money is available for the occasional "emotional need," he said. That might be an occasional weekend family trip or a journey to see a loved one.

As the Yuletide season approaches, you may consider giving yourself a Christmas gift this year by exercising greater control over spending through a good, practical budget.

(Additional information)

Tips for successful budgeting

There are various budgeting systems, but the best ones, experts say, incorporate the following steps:

Estimate your net income for the budgeting period.

Estimate your expenditures for the budgeting period. Expenditure categories will be of two types: fixed (i.e. home mortgage, rentals, loan repayments) and discretionary (i.e. food, clothing, gifts, entertainment, vacations). Remember to consider such items as semi-annual insurance payments and year-end property taxes. Remember, also, that utility costs often fluctuate according to the season.

Balance estimated income with estimated expenditures for the budgeting period. Trim or adjust discretionary expenditures until the budget is in balance.

Keep track of each expenditure, subtracting the amount from the appropriate budget category. Timing is critical; the subtracting should be done as soon after the expenditure as is feasible so you know where you stand in that particular category. Don't wait until the end of the month.

Don't panic or give up if you go over budget in a certain category, but make adjustments, if necessary, either in your budget or in your spending behavior. You may have to go back to step 3 one or more times before you have a workable budget in place.

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