Budgeting 101

[sbeaulieu]

A touchy subject with me around the house is money. I used to love spending it, but now I hate spending it because it's mostly on bills and it all seems to evaporate very quickly. Being married, my ideas on money along with my lovely wife's don't tend to line up. Long story short, I've been talking to a co-worker of mine who used to be in the same boat but farther down the money rabbit hole than I was. Now, she's out of debt, owns her house, etc. She used the Dave Ramsey budgeting system of no nonsense approaches to get where she is.

Anyone use anything like this?

~ Shane

[Mikee]

I don't believe in budgets. Budgets cause wasted spending. Rules for spending are more important:

1. Don't be "penny wise and pound foolish"; in other words don't sweat the small stuff.

2. Have a hierarchy of importance for spending, health and peace of mind first, self improvement and education.

3. Have a 24 hour rule and be inflexible on this point. Never impulse buy. When you're absolutely positive you really, really want something, wait 24 hours. Ignore the salesman who says "This price won't be here tomorrow".

4. Think of purchase as an investment, buy things that last and retain their value or help you leverage your health or earning potential. Every single day you should be slightly better off than the day before.

[Xray]

I don't believe in budgets. Budgets cause wasted spending.

Why do you think budgets cause wasted spending?

[merjet]

A budget is a tool that can be used well or badly. A person inclined to overspend can use a budget to control spending, which is good. A bad use is somebody having a budget for $X in a year, nears the end of the year having spent less, and then spends wastefully to reduce the shortfall. Dave Ramsey's advice is mainly for the first type of person.

The need for a budget may not be due to impulsive overspending. For example, suppose one's income falls due to a job loss or change or retirement.

[Mikee]

I don't believe in budgets. Budgets cause wasted spending.

Why do you think budgets cause wasted spending?

You are attempting to predict the future which is impossible. The "budget" creates a lower limit on spending. You cannot spend less than the budgeted amount (typically). This generates waste because you often do not need to spend the lower limit in a particular category. But "need" will always force you to spend more than the budgeted amount in a category. It is better to just have good rules of spending.

[Michael Stuart Kelly]

Shane,

David Ramsey rocks.

From what I know of you, you could do a lot worse--a lot lot lot worse--than follow his advice.

His debt snowball is clever and it works. But he comes with so much more.

He's religious, so if that's an issue, just grit your teeth during those parts. The rest is well worth it.

btw - If you do a Google video search or one on YouTube, there is plenty of free Ramsey stuff to look at.

Michael

[sbeaulieu]

Mikee,

I agree to a point on your assertion that rules for spending should be the overall objective. However, I stated that my wife and I don't see eye to eye on spending, which causes a little bit of strife at times. It's a team effort in a marriage to manage money well, and for us, a budgeting system is needed. I'm just trying to get her to see down the road a bit vs. paycheck to paycheck.

Michael,

Thank you. I did notice, very much so, that Dave Ramsey had a religious tone to his work. Grit my teeth, I will. But if a system works, it works. That's what I'm looking for. But, that religious tone might be the buy-in for my significant other I'll check out some of his videos.

~ Shane

[Mikee]

Mikee,

I agree to a point on your assertion that rules for spending should be the overall objective. However, I stated that my wife and I don't see eye to eye on spending, which causes a little bit of strife at times. It's a team effort in a marriage to manage money well, and for us, a budgeting system is needed. I'm just trying to get her to see down the road a bit vs. paycheck to paycheck.

Michael,

Thank you. I did notice, very much so, that Dave Ramsey had a religious tone to his work. Grit my teeth, I will. But if a system works, it works. That's what I'm looking for. But, that religious tone might be the buy-in for my significant other I'll check out some of his videos.

~ Shane

Shane,

I had the same difficulty in my first marriage. My efforts at getting my first wife to commit to a budget were worth nil. She promised to keep me informed about her expenditures but did not keep that promise. Extremely frustrating. When we split up (I was 40) my net worth was negative, I had a fairly new mortgage at 11.5% and debt from her spending which I previously was not aware of. She was very surprised that I elected to keep the house and pay her off. Took two years to get my head above water. I have now paid that house off and own it free and clear. I've fixed all of the problems with that house and still live in it. My second wife is if anything more frugal than I am (keeps the house at 63 degrees; brrr). If it were not for idiot Obama and friends I would feel pretty comfortable even if SS didn't exist. Now I wonder if my savings and investments will be worth next to nothing because of the financial irresponsibility of our own government. Looters, liars and lawyers. Can't get a divorce from them.

[sbeaulieu]

I hear ya! I'm not quite ready to make the push for the big D. We share some similarities, but I control the money at this point. I do have a tendancy to be too lenient when she goes astray. But I'm hoping she'll buy into it once she sees the positive outcome. If not, then it's just another good attempt on my part to fix our money situation that turns out to be one-sided. I've already given her a nice ultimatum that when my 20 years of service are up, her 20 starts...haha! She is going to school and she does contribute. Just got to get a handle on the spending. Our bills/expenses for the most part only eat up half of my income, so it's very manageable. It's the changing how we spend. But more importantly, again, is getting her to see down the road for when it's just her and I in the house after the kids are grown up.

~ Shane

[Mikee]

Shane,

Sounds like things are going great for you! Many people don't even start worrying until they're deep in debt and their expenses are greater than their income. That's what easy credit does. Congrats and very best wishes.

Thank you for your service. My dad spent his life in the Army, made MSgt. Lost his toes to frostbite in Korea then switched to the Air Force, as an MP I think. I think his injuries made continuing in the infantry problematic. He enjoyed the Air Force, sent me letters about SAC and raved about the space program. I still miss him after all these years and I'm proud to be his son.

Cheers,

Mike

[sbeaulieu]

Mike,

I appreciate the kind words Korean winters are brutal. I managed two of those. My conditions obviously weren't as menacing as they were for your father, but I came close my first tour to getting frostbite due to deuce-and-a-half with no heater on a five-hour convoy! The Air Force has been very good to me. My father served 20 years also, retiring at my current rank. His last 8 years were for SAC.

On a good note, I got my wife to read the first chapter of Dave Ramsey's book, Total Money Makeover...progress!

~ Shane

[Xray]

I don't believe in budgets. Budgets cause wasted spending.

Why do you think budgets cause wasted spending?

You are attempting to predict the future which is impossible. The "budget" creates a lower limit on spending. You cannot spend less than the budgeted amount (typically). This generates waste because you often do not need to spend the lower limit in a particular category. But "need" will always force you to spend more than the budgeted amount in a category. It is better to just have good rules of spending.

I'm currently reading the book The New Frugality" by Chris Farrell. He says about budgeting (p. 79):

A budget is simply a way to seize control over financial chaos. it helps us stop spending more than we earn. We know we're wasting money, but we're not sure on what. The payoff from a budget is that you end up spending your money where you want and save for for what you would like to do.

Boring as budgeting is, I think it can help control 'cash dribble' due to actions like e. g. spontaneously buying fairly expensive snacks, and other impulse buying.

[Xray]

A touchy subject with me around the house is money. I used to love spending it, but now I hate spending it because it's mostly on bills and it all seems to evaporate very quickly. Being married, my ideas on money along with my lovely wife's don't tend to line up. Long story short, I've been talking to a co-worker of mine who used to be in the same boat but farther down the money rabbit hole than I was. Now, she's out of debt, owns her house, etc. She used the Dave Ramsey budgeting system of no nonsense approaches to get where she is.

Anyone use anything like this?

~ Shane

I have read Dave's book The Total Money Makeover, but unless one is totally committed to stick to his complete program, this isn't going to work out in full.

It also requires a lot of discipline and very hard work. The inserted stories by people who have successfully tried out Dave's system clearly show this.

One family for example (story on p. 6/7) managed to pay off a whopping $57,000 from their debt load in a mere six months. $57,000 in only six months!! Can you imagine that?

I'm not in debt, but would like to increase my retirement nest egg, at which inflation is eating away.

If this family was able to pay off almost $ 60,000 in six months, then it must also (at least theoretically!) be possible to put aside about the same sum for one's nest egg. Even stretched over a whole year, $ 60,0000 is still a large sum to put aside.

But here is the hitch: one has to be willing to work extremely hard to do that, like taking on moonlighting jobs, etc.

If you are not willing to make such sacrifices, forget it.

Also, the reason why the debt-ridden people were so committed: fear drove them. Dave even created a name for this fear, calling it "gazelle intensity". Like the gazelle fleeing from the hungry lion to save its life, the participants in the program are goaded to flee from their threatening financial situation into financial security. "Gazelle intensity" is a productive fear, so to speak.

But again, if you don't feel that fear, forget it.

I have never felt much fear when it comes to money, going more by a "Somehow I'll be able to get by, after all, up to now, I always have" attitude, accompanied by thoughts like "You can't take a cent with you to the grave anyway, so why bother that much?"

This probably would not make me a good candidate for Dave's program, but I do admire very much the people who have succesfully stuck to it.

Maybe starting with putting aside some more money than I used to will get me more into gear ...

Dave's book is truly inspiring, It's the type of book that can create a real turnaround in people's lives.

[Selene]

Angela:

Interesting.

We in the US will have to feel that same Gazelle intensity, but we are still much too fat and complacent to even feel a modicum of that feeling.

I also find it fascinating that after two World Wars and countless deaths, casualties and destruction, Germany and Russia are the dominant players on the European scene economically.

Adam

[Michael Stuart Kelly]

Kat's doing a Ramsey program right now and managed to drag me to a meeting.

Here's a tidbit I think will interest the people in our neck of the woods.

One lady spoke up and said she feels her "inner socialist" is getting in the way of implementing Ramsey's lessons. (Evanston is as leftie as it comes--and it's a college town to boot.)

She wants to increase her wealth, but she looks around and sees all the people who don't have anything, then sees folks like Ramsey himself with a lot of money, and she feels conflicted. She said she is struggling with the idea of "winning."

From what I saw, this lady was sincere and she actually was troubled (she's the "nerd" and her hubby is the "free spirit" in Ramsey-speak). I believe the good guys will win her soul over, but it's interesting to see how an overdose of socialist thinking can psychologically get in the way of a good person who wants to shoot for the stars. Guilt trip, anyone?

For this lady, it's going to be a long spiritual haul, but she seems committed. I wish her well.

Michael

[sbeaulieu]

Michael,

I'm coming to realize, whether money or politics, idealogy is a hard thing to climb over. Maybe the hardest. Like any good toolbox, you find your favorites and let the others collect dust. Doesn't mean the toolbox isn't good. You just have to find the right tool for the job. Sometimes it involves grabbing those metrics over the standards ;) Call me crazy, but I sometimes like using a flathead screwdriver on a philip's head screw... if it fits.

~ Shane

[Kat]

Dave Ramsey is awesome. He truly does help people find their way out of the debt trap. Listen to his show any Friday and you will hear the debt free screams. It is very inspriring. For about 2 years I have nibbled around the edges of the program and now I am actually going to the 13 week course and trying to drag MSK along. I think having a house that is underwater was a real wake up call.

At first I had trouble getting past the religious stuff, but when you realize that he is using that to convey his message, it is ok. He often quotes the bible such as "the borrower is slave to the lender" and that is so true. I do love when he goes on some of his rants and I like his political perspective. I have a quote posted up in my cube at work that says, "You can't spend more than you make, you're not in Congress!"

Anyway it is rice and beans and beans and rice for us for awhile. Good thing Mike likes it so much.

Kat

[Michael Stuart Kelly]

Shane,

You're right about ideology.

The best way I have found is to treat ideology as a body of conclusions about right and wrong drawn up by others. I'm talking about all sides.

When people allow ideology to take over their critical thinking, it stops being a body of conclusions and starts becoming an epistemological method. See this thread on OL for an extreme case--a highly entertaining one.

I believe the good guys will win in the case of the lady I mentioned earlier because her critical thinking is still in place.

I see a lot in the Objectivist world that makes me sad. But I have a saddest thing of all. I watch people being attracted to Objectivism because Rand keeps saying to check your premises and newbies are sick and tired of the BS. So that sounds like a voice of sanity all of a sudden. Then when they find certain kinds of Objectivist environments, after a grace period, they start becoming belittled for the critical thinking they express and accused of attacking Rand, etc. etc. etc.

I am proud of OL in this sense. OL is a place for critical thinking. Sometimes it's hard to distinguish between trolls and people who are trying to work out their ideas--they can sound an awful lot alike at times, but I think we do a good job overall.

It's so easy to get it. Critical thinking is not a substitute for right and wrong. It's a method for arriving at it. The unseen trap is when people let the right and wrong conclusions they get handed by others (i.e., ideology) become a substitute for the criticial thinking they have to do to fully understand something.

Your analogy of using a flathead screwdriver on a Philip's screw is a perfect illustration of critical thinking. You wouldn't use that as your primary method of fastening screws, but you don't get shut down when you don't have a Philip's screwdriver handy, either. Besides, when it works, it's a lot of fun.

Michael

[Xray]

Kat's doing a Ramsey program right now and managed to drag me to a meeting.

Here's a tidbit I think will interest the people in our neck of the woods.

One lady spoke up and said she feels her "inner socialist" is getting in the way of implementing Ramsey's lessons. (Evanston is as leftie as it comes--and it's a college town to boot.)

She wants to increase her wealth, but she looks around and sees all the people who don't have anything, then sees folks like Ramsey himself with a lot of money, and she feels conflicted. She said she is struggling with the idea of "winning."

From what I saw, this lady was sincere and she actually was troubled (she's the "nerd" and her hubby is the "free spirit" in Ramsey-speak). I believe the good guys will win her soul over, but it's interesting to see how an overdose of socialist thinking can psychologically get in the way of a good person who wants to shoot for the stars. Guilt trip, anyone?

For this lady, it's going to be a long spiritual haul, but she seems committed. I wish her well.

Michael

To this lady, being a "good person" may mean not to make profit from the misery of others; I think this is an ethical concern to be taken seriously in every decision an individual makes, which includes choices where to invest one's money.

For example, does any layperson investing his/her money in mutual funds know where that all that money is going? Can one definitely know it isn't going to be invested in e. g. sweat shops profiting from child labor?

Maybe investing in 'ethical funds' could be an option for this lady?

[Michael Stuart Kelly]

Xray,

I have no doubt that's part of it... in fact, from one angle, that's all of it.

People of that bent only see the downtrodden and they see themselves as not one of those poor folks. That makes them feel guilty. They never see the effort (and, at times, sacrifice) that goes into creating great wealth.

Here's a guilt-popper. On a statistical level only (leaving out ethics), which action results in helping more downtrodden people?

1. Helping the very weak?

2. Helping the able to become more able?

Since people are generally benevolent, the second results in far more poor people being helped. Able people normally help the weak around them as a habit.

On reflection, this is kind of a stupid dichotomy if you think about it in all-or-nothing terms. You should help the weak AND help the able to become more able. There's no reason on earth why you can't do both and feel good about it.

Michael

[sbeaulieu]

Kat,

I tend to use innuendo a lot, to spice up conversations at work and at home. It's a way to drive a message in a different format. If they get it, they get the underlying message. I'm sensing that's your reference in Ramsey's approach. If that's the case, I ride that wavelength all the time

Michael,

I agree about how hard the newbies have it. I'm one of the fortunate ones to have found OL first before any other site, and I can honestly say I've not had any confrontations, serious, or otherwise regarding subjects I've broached (like the supernatural phenomenon... the flying brick to be specific). I still have a lot to learn about the basics of philosophy in general. I feel at times that I've skipped a few chapters and jumped straight in. I chalk some of that up to the extensive reading I've done with Terry Goodkind's books over the years. In short, you have a great house here ;) And it's certainly helped in my critical thinking. Because I'm not dissed here, I can use responses constructively. That's hard environment to find.

With regard to your response, to Xray on guilt-popping. I tend to think you could do both. The focus on #1 should be to bring them to the state of #2, or at least to become able.

~ Shane

[Xray]

Xray,

I have no doubt that's part of it... in fact, from one angle, that's all of it.

People of that bent only see the downtrodden and they see themselves as not one of those poor folks. That makes them feel guilty. They never see the effort (and, at times, sacrifice) that goes into creating great wealth.

Michael,

I think part of the guilty feeling also has its roots in having been born, by sheer luck, into more wealth, enjoying the benefits of a modern civilized country without having earned those benefits by one's own effort, and the awaress that countless other people who have to struggle everyday for sheer survival in third world countries being born, by sheer bad luck, into those poor living conditions without having caused them either.

An approach that works well (at least in my personal experience) is not to take anything for granted, not to have an automatic attitude of entitlement, which replaces the feeling of 'guilt' with 'gratefulness' instead. And getting involved in charity projects of my choice.

Here's a guilt-popper. On a statistical level only (leaving out ethics), which action results in helping more downtrodden people?

1. Helping the very weak?

2. Helping the able to become more able?

One could also could also add a third option:

3) Helping the very weak to become more able?

Many charity projects focus on that: helping people to help themselves.

Since people are generally benevolent, the second results in far more poor people being helped. Able people normally help the weak around them as a habit.

Able people always attract others who want to learn from them. And wanting to share one's ability with others is a human trait, I think, so there's a lot of potential here.

On reflection, this is kind of a stupid dichotomy if you think about it in all-or-nothing terms. You should help the weak AND help the able to become more able. There's no reason on earth why you can't do both and feel good about it.

ITA. there is no need to establish a dichotomy there.

And instead of automatically positioning the individual 'versus' the society, why not see the issue as 'the individual in the society' instead? That way, benevolent, voluntary, community-oriented behavior would get a productive place in ethics.

[PDS]

My advice--in a vacuum and without any claim to profundity--but based upon 20 years of successful marriage, is as follows:

1. Budgets don't work.

2. A specific game plan to get rid of debt does work.

3. #2 above becomes de facto #1, if you get a buy-in from your spouse, and if you (yourself) stick to the game plan. Sort of like dieting together.

4. The rollover plan to get out of debt is key, i.e., using the expired payments from your worst debts to add on top of the existing/remaining ones, especially if you don't get substantial bonuses or "found money" from your employer or rich relatives. Otherwise, use 90% of the "found money" to retire old debts in chunks, and the other 10% to splurge.

5. Not all debt is bad. Don't go apeshit about getting rid of it.

5. Bonus tip of best marraige advice I ever recieved: don't try to change your spouse--ain't really gonna happen.

[Michael Stuart Kelly]

One could also could also add a third option:

3) Helping the very weak to become more able?

Xray,

Of course.

I considered that implicit in helping the weak, but it's good to state it outright. And it's true that there are some weak people who simply cannot get better because of illness or whatever. So there are actually two kinds of weak we can talk about in this context. (And I do not consider freeloaders the weak.)

But lemme go through that again... Helping the very weak to become more able?

Heh.

Be careful. You're starting to sound like an Objectivist.

Michael

[Xray]

My advice--in a vacuum and without any claim to profundity--but based upon 20 years of successful marriage, is as follows:

1. Budgets don't work.

2. A specific game plan to get rid of debt does work.

But in order to establish a realistic get-rid-of-debt game plan, isn't it necessary first to know where all one's money goes each month, and doing at least some budgeting?

4. The rollover plan to get out of debt is key, i.e., using the expired payments from your worst debts to add on top of the existing/remaining ones, especially if you don't get substantial bonuses or "found money" from your employer or rich relatives. Otherwise, use 90% of the "found money" to retire old debts in chunks, and the other 10% to splurge.

Dave Ramsey's rollover 'debt snowball' plan plan attacks debt from the opposite direction: he recommends paying off the smallest debts first. He says that this creates a faster-to-reach feeling of having acccomplished something, and that the psychological power of a such a 'lift' motivates people to stick to the free-from-debt program.

3. #2 above becomes de facto #1, if you get a buy-in from your spouse, and if you (yourself) stick to the game plan. Sort of like dieting together.

I think every financial advisor will agree on this: There's no getting rid of debt in a family (or in family-like structures in which people live together), unless each team member is actively involved (according to his/her mental capacities - but even an eight-year-old can understand that Mum and Dad have to pay for food first before buying the latest computer game).

Therefore being in debt as a 'group [family, etc.] member' means getting out of it will be' group [family, etc.] member' issue as well.

5. Not all debt is bad. Don't go apeshit about getting rid of it.

Put in Objectivist terms: debt is contextual, since it is always: Debt to whom and for what purpose? For example, a loan for paying off one's house would be 'good' debt, because paying it back will result in ownership of something that will contribute to more financial independence.

5. Bonus tip of best marraige advice I ever recieved: don't try to change your spouse--ain't really gonna happen.

I'll bet my bottom euro that anyone here who has ever been in a longer-lasting relationship will have to agree to that.

Imo working with a partner's resources instead of focusing on his/her 'deficiencies' works far better.

And what kind of partner would bring out the best in us: the bickering type, or someone focusing on our strengths and resources?