Your Money: Are budgets really that bad?
October 23, 2012
One headline caught my attention lately. According to a survey of Northwestern Mutual’s Facebook fans, only 47 percent of couples discuss personal finances before they become engaged. This number jumps to three-quarters of couples who discuss money before the wedding, but I am still shocked that it’s not 100 percent. I’m not embarrassed to admit that I think about money and finances far more than an average person, but I still cannot imagine getting to the point of engagement with someone without having discussed it. All too often I find that couples are afraid or ashamed to discuss money, let alone plan their financial future together.When I ask a couple if they have a budget, I often hear a list of excuses about how budgets are constraining and not worth the effort. I’m sure it comes as no surprise that I love budgets. I challenge any individual, couple or family to sit down and prepare an annual budget, and then recheck their actual results against their budgets a few times throughout the year. I can’t promise that it will change your life, but I can promise that it’s a step in the right direction.Why are budgets so valuable? From one perspective, they help you control costs. I don’t believe that your budget should be constraining, but rather it should be a guide. Each year, my family and I sit down and discuss our priorities, such as retirement savings, vacations, and of course, ski passes. Once we determine our priorities, we add those up as well as our fixed costs like our mortgage, car payments, daycare, etc. With these figures, we can then determine our annual expense budget, and make sure that our income budget is greater than the expenses!I believe that people who think budgets are constraining are either living outside their means and afraid to put it on paper, or aren’t actively managing their budget. The beauty of writing it down and reviewing throughout the year means that if you go over your budget in one category you can always pull it from another. Want to take a dream vacation this year? You may decide it’s worth spending less money on dining out and saving it toward the trip.From another perspective, budgeting can help you calculate your most powerful figure each year, the total cost it takes to live your life each year. This number is very different for each household, and there is no right or wrong answer. Every budget should include some amount of wiggle room as well. This is money that you can spend any way you choose, whether you want a daily latte or you simply enjoy throwing dollar bills out the window as you drive. Especially in a marriage, it’s important to have some funds that you can spend spur of the moment and without guilt.Most importantly, budgets are empowering. Once you have a concrete figure in mind, all financial decisions become easier. If you want to buy a house, move, switch jobs, retire and make any other life change, there are a lot less “what if’s” when you know exactly how much money you need to meet your goals, enjoy life and keep your bills paid. Don’t believe me? Try it. The only downside is you lose a few hours of your life, but the up side can be tremendous. Michele Knight, owner of Knight Accounting & Technology, is a CPA and QuickBooks ProAdvisor based in Dillon. For more info and to contact her, visit http://www.cpamichele.com.
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