Budgeting is like dieting, when it’s too strict it quickly falls apart. Fortunately there are simple ways to get around the challenges linked to budget discipline. Lead by example and teach your family members to follow these habits and you’ll ensure their financial stability in any environment. Here are three tried and tested habits:
Save first, ask questions later
This is often the most successful habit for wealth creation. Save first means separating a portion of all of your income as soon as it comes in the door and before anything else happens. 10% is a good example of save first. Store that portion in an investment account or even a simple savings account.
Why first? Budgets expand to their limits the same way gas expands to fill a room. It’s not an official law of physics, but it very well could be. Make save first a habit so that you are free to spend whatever’s left however you see fit. Lead by example and reinforce this habit early and often with your family. As long as they can keep the habit going you won’t have to worry about their financial stability.
Too often we hear that people have no idea how much they spend or where they spend it. How can we expect to make smart spending decisions when we have little to no insight into our own spending habits? Fortunately technology has an easy solution. I recommend using Quickbooks, which costs $15/month. Test out creative spending categories like: “Social Meals”, “Self Improvement” and “Family Experiences”.
Memory is a poor storage place when it comes to numbers. Instead, leverage software to gain insight into your spending habits, the same way a company would review its profit and losses on a monthly basis. Lead by example by doing this for yourself first, and then for your family members.
(***Mint is the free version, but I don’t recommend it. The ads are a distraction, often misleading and make Mint not worth the ‘free’ price tag, in my opinion. Running a complex family organization with a quarter million dollar budget justifies the extra $15/mo.)
Make more or spend less?
One well-traveled path to financial stress is regularly spending more than you make. Competitive type-A personalities often retort that they solve this issue by simply always making more than they spend. They’re not wrong because that can work temporarily. However those people often feel that they’re under considerable pressure to perform. Try out both methods for a period of time if you’re unsure about committing to one or the other.
Talk about it
From our vantage point at Osbon Capital, we’ve seen many examples of what works well and what doesn’t. One of the best ways to pass on good financial habits to the next generation is to and have regular conversations about the above habits.
Budget habit conversations of the truly wealthy is something you owe yourself and your family.
Max Osbon – firstname.lastname@example.org
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