Lori has made tremendous strides in building a solid financial foundation for her family since we began working together last October. Some 'slips' and overspending are inevitable — and often provide great teachable opportunities. So as we reach the last weeks of our work together I am seeking to reinforce a few basic budget lessons. Lori's recent overspending episode with friends, subsequent rationalization and proposed solution provides exactly this opportunity. Lori is earning enough right now so that there is little immediate consequence of modest sized over-spending episodes — the impact is long term, building dramatically the longer it goes on unchecked. But a lack of control over ‘one-time' expenses that are not in the budget – both large and small – will have a tremendous impact over a period of months and years. These are significant not just for the actual expense but the lack of discipline that becomes habitual.
If motivation is the problem then write down long term financial goals and post them wherever they will be seen every day. Track progress toward those goals monthly. Set interim goals and a preset reward for achieving the goal. Get the kids in on the challenge.
Lori needs to do more than 'commit' to putting money into savings first — she needs to do it. She must have that money electronically transferred the day the pay check arrives. I like her idea of estimating the bills to be paid with the current paycheck and reserving that as well. What I don't like is the idea that anything left over is 'extra.' There is not an ‘extra' line item in the budget we created. There are short term and long term goals to be met. If Lori's short term goals (monthly expenses) are being met then remaining cash must go toward long term goals — new car, new clothes, and home ownership. If there is money not accounted for, then Lori needs to review her current budget and increase the transfer amount to savings. If there are to be additional and reasonable expenses — that is okay — but these expenses must be budgeted first even if they are allocated to a general slush fund.
As I have told Lori before — spending without a predetermined limit is unacceptable. That habit is the single most difficult one to eliminate and the biggest budget busting problem there is.