I’m not bragging but making a point. When I took over my local teachers’ union years ago, the organization was $10,000 in debt and bleeding members. Five years later when I left, the debt was paid and the organization had won a collective bargaining election. Surprised by what I’d accomplished, the national office sent a field representative to interview me about the turnaround. “How did your design your budget?” was the first question. Budget? I blinked. I didn’t have a budget. The field rep’s eyebrows shot up. “Then how did you eliminate the debt so quickly?” It was my turn to look amazed. “I cut back spending.”
When I was growing up, my family had so little money, the challenge wasn’t about how to save. It was about how to make the paycheck last till the end of the week. Times when it didn’t, we stopped eating. Food was the only flexible item in our budget besides clothes, which we rarely bought. Rent, utilities… they had to be paid or we’d be out on the street or eating by candle light. Naturally, when I took over the union, I reverted to the old ways. I eliminated all but vital expenses.
The strategy worked, though I don’t recommend it as a way of planning for the future. I know that now, so I was intrigued by an article by Rebecca Webber, “Budgets That Bend.” (Family Circle, August 2015, pg. 78.) Budgets are essential, she argues, even when times are lean and the most pressing question is which creditors must be satisfied and which can be put off.
Tight money isn’t a reason not to plan and it doesn’t require a knowledge of spread sheets. Pen and paper will do. If you can afford an app, Webber recommends Mint or YouNeedABudget (YNAB).
After budgeting for a while, you’ll get a good idea of your spending habits in both fat and lean times. In good times, Webber suggests the obvious: stash some of the surplus into a bank account as a backup for harder times. A good rule of thumb for a windfall, like a tax rebate, is to put a third toward paying down debt, a third into savings and a third to reward yourself for sticking to your budget. Go on, buy that fudge ripple ice cream cone.
When you begin a budget, your first priority is to build up your savings account. Webber recommends a nest egg that will cover living expenses for 6 months. Even if you exist from pay check to pay check, savings are possible. Give up that morning coffee or the fudge ripple cone. Little amounts, when regularly deposited, add up. For free entertainment, borrow books and movies from the library.
Those with a steady job with a 401K should maximize their savings deductions. If you’ve already done that, good for you. Now explore the possibility you might also be eligible for an IRA contribution as well. To find out check rothira.com.
Fat and lean times cycle in most people’s lives. A budget gives us some control over the future. It also gives us insight about ourselves. As the current US Secretary of the Treasury, Jacob Lew says, a “budget is not just a collection of numbers, but an expression of our values and aspirations.”