The Importance of a Written Budget

I got a phone call the other day from a friend who reads my blog.  “Hey,” she said.  “Can you tell me more about the TV antenna you were talking about?”  I gave her what details I knew, and she said she and her husband (I’ll call them Barbie and Ken) are cutting out cable television because Ken just got a substantial pay cut.  They are grateful he still has a job; a number of people at the company were laid off.  Still, the pay cut they are getting is big.

So I talked to Barbie about the TV.  She asked what we do about Internet (we don’t have it at home) and other ways to cut expenses.  I asked if they had anything to sell, but she said they sold it all last year in preparation for a large expense — an expense for which they unfortunately and unexpectedly still ended up borrowing money.  Barbie said she’d found a web site called something like “Fifty Ways to Save Money… and no you’re not doing them all.”  She said, “Karen, we’re doing them all.”

We talked about budgeting.  She had mentioned how the credit card bill would come, and she’d look at it and ask Ken why it was so high.  “Well,” he’d reply, “I needed x, y, and z.”  And they were legitimate purchases.  The next month, he’d ask her the same thing, and she’d tell him about the legitimate x, y, and z that she needed.  I said that the only way I know of to solve that is to sit down with your spouse on a regular basis (each time your paycheck comes, for instance) and discuss and agree upon every dollar that will be spent.

I was laying a fire that night, and I have this habit of reading the newspaper articles that catch my eye as I’m crumpling the paper to put it in the wood stove.  A woman wrote to some financial dude, saying that she and her husband always fight about money.  One of them is a spender and the other is a saver.  She asked for help.  He replied that the solution is to cut back on expenses.

I didn’t bother to finish reading the article; I wanted to light the fire because I was cold (have I mentioned that we have our thermostat set at 50F?)  But also, I think that guy was dead wrong.  Yes, cutting back will help, but the problem with cutting back is that members of a couple often don’t agree on what cutting back means.  To one, it means stopping at Starbucks only twice a week instead of every day.  To another, it means making coffee at home and cutting out Starbucks altogether.  Besides, there will always be those legitimate expenses that come up that you think you didn’t expect.  So cutting back doesn’t stop the fighting.

In my opinion, the solution is in the communication of a budget meeting.  When you and your spouse (or just you, if you’re single!) sit down and decide where every dollar of that paycheck is going, you take control of your money.  You tell the money where to go instead of wondering where it went.  Chef and I agree to a written budget every two weeks, and if something comes up in those two weeks that we need, then we put off that need until the next pay period, or we use our “blow money” (money set aside for personal stuff, fun things, and/or unexpected needs), or we have an emergency budget meeting to figure out which budget item we’re going to take money out of in order to pay for this unexpected need.

Chef and I have discovered that most of these unexpected needs aren’t true needs (or at least, not needs that can’t wait) and they usually aren’t truly unexpected.  (Seriously.  You knew the car was going to run low on gas at some point.)

Even though Chef and I have had the same income for the last year and a half, we felt like we got a raise when we started telling out money where to go instead of wondering where it went.

Plus, we think our marriage is better because we’re  communicating more and our money fights are pretty much eliminated.

Here’s the Monthly Cash Flow Plan form from Dave Ramsey.  We started with something like this, and then altered it for our own use (added some categories and removed others), and we’re constantly revising it.  But this is a really good place to start.  And here’s an online form you can use if you don’t like paper; Dave calls it the Gazelle Budget Lite.  It’s super short and doesn’t have nearly the detail that the other one does, but maybe this is what you need to get started.

It doesn’t matter what form you use.  The important thing is to AGREE on the budget, and then STICK TO the budget.  I really think you’ll be amazed at how much you’ll keep from spending.

I’m interested to hear from those of you who use a written budget, and the experiences you’ve had with it.  Tell me in your comments!