Tracking Your Financial Journey

Persevering in Budgeting

A well-run business doesn’t just set a budget and stop there. It tracks what actually occurs, compares those results to the budget, and makes appropriate adjustments along the way. The same should be true for how you manage your personal finances.

You should count on the fact that it will take a few months to develop a budget that is realistic. I often chuckle when reviewing the initial budget of someone I am coaching. They may be deep in credit-card debt, but the budget often shows a surplus. In reality, they have underestimated certain types of spending and often left out whole categories.

I remember coaching one couple who had estimated $20 per month for meals out. I asked how often they went out, what type of restaurant they went to, and whether they took the kids (they had a large family). They said they took the whole family out for pizza once a week and that it cost about $30. The annual budget they prepared showed $240, while they were actually spending closer to $1,500. Imagine that type of error multiplied across five or six spending categories. Pretty soon you are talking about real money!

Don’t be surprised if it takes about three months to begin having confidence that your budget is a good reflection of your actual spending.

1 The tithe (10%) is our guideline. Those on low incomes should strive to be generous, but understandably may use more of their resources to meet basic needs. Those with higher incomes may find that 10% is not enough. 2 Tax percentages are dependent on a number of factors, including the number of children in your family. Review your previous tax returns or consult a tax professional. 3 Assumes part of tithe used for Catholic school tuition or home school expenses. 4 This category includes saving for college and retirement. You should take into account any retirement program benefits from work (401K; pension) when determining your needs for this category.

Nuts and Bolts of Budget Systems

Let me touch on a few more items that are important when it comes to budgets. There are basically three general options you have as far as budgeting systems go. You’ll find all of the information you need in the Money Sense — Practical Application Workbook, to help you understand which option is best for you and instructions on how to get started. But I’ll give a brief description here.

Your first option is a basic envelope system in which you have an envelope for each category of spending. Your monthly budgeted amount for each category is noted on the envelope and you divide the cash from your paycheck according to the budgeted amounts on the envelopes. You spend from each envelope during the month, and when the money is gone, you don’t spend until the next month. This is the simplest method and can work very well if you haven’t been able to stick with one of the other two options, which are more complete, but also more involved.

The second option is to develop your budget and track your expenses by hand using the forms in the Money Sense — Practical Application Workbook. The forms provide all you will need to understand where you are regarding your assets and debts, as well as your income and expenses. Records of spending are readily available for you to review at any time.

Finally, the third option is to use a computer-based budgeting system such as Inuit’s Quicken, or Microsoft’s Money. These will provide information similar to what the forms in the Money Sense — Practical Application Workbook do, but will make the process more efficient.

Remember that a budget is a tool that should enhance communication in your family. It should not be a mechanism to control your spouse. When used properly, it brings husband and wife together and helps them establish proper spending priorities. It helps you look ahead and anticipate issues that you need to deal with. As a result, you are able to respond to potential problems before they turn into a crisis. When used in this manner, a budget truly sets you free.

You can expect a few bumps along the way, especially during the early stages of getting on a spending plan. I remember hearing from good friends of ours after they had developed a budget. They had a large number of children, and as they looked for ways to reduce expenses and make the budget balance, the children would moan and groan about some of the cutbacks. I was “affectionately” nicknamed “the hatchet man!” Be aware that there may need to be some painful changes to long-time spending habits, but don’t get discouraged. It will take a few months to get used to how budgets work and to begin seeing the benefits. Remember the words of St. Jose Marie Escriva, “To begin is for everyone, to persevere is for saints.”

Phil Lenahan is Director of Finance at Catholic Answers and author of Catholic Answers’ Guide to Family Finances. If you have a question you would like Phil to address, contact him at plenahan@catholic.com.