I’ve written about the main 4 walls of planning your budget (housing, utilities, food, and transportation) and that it will lay the foundation of creating a clear picture of what is spent. These are the most important expenses to cover, but if you are not in a financially stressful situation right now, the budget will be more robust with other categories. Since late 2007, the U.S. has seen job losses, increases in income stagnant and foreclosures increase. If you were not directly affected by job loss or reduced income, you probably still tightened the belt a bit.
Cash flow planning is where we start looking at what really happens with our money after the essential expenses are
covered. Without a budget, you won’t know where the dollars should go and will wonder where they went. Cash flow planning is more in-depth. You take your discretionary money and decide where it needs to go. There are many categories. The list could include some of these: retirement savings, college savings, entertainment, fitness memberships, kid’s sport activities, dining out, as well as many others.
A zero-based budget will specifically plan how each and every dollar will be spent. In the budget, each dollar will be assigned to a different category. The result should be that there is not a single dollar left unaccounted for in the budget. If you have money left over, it can go to savings, charity, or another area like vacation funding. Find a cash flow plan on my website if you like or design your own. The goal is to work together with your partner and come up with a plan that both parties can agree to without feeling guilty or left out of the decision making process.
My husband and I do this. The first few months were not easy; we would have to go back and tweak it more than once. Now, after many years of practice, it’s almost on autopilot. That’s not to say we don’t miss anything, because we most
certainly do. But after working on this as a team, it doesn’t really faze us. We just discuss what expenses can be reduced or wait until the next month. That’s the importance of having the monthly budget committee meeting before the new month starts.
It’s surprising how often we have more money left than we thought we would because we are being more careful and have put thought into how we are going to spend our income. We don’t argue about money at all because we have a plan and discuss it regularly. Money is the number one reason leading to divorces, so wouldn’t it be better to have a budget committee each month? It just might work. Communication and a stick-to-it commitment are what it takes. I’ve seen many folks struggle because there is not a plan. Through this process, you will talk more, share dreams and fears, and define your goals on your way to becoming a winning team financially. For additional guidance on effective financial planning and communication, explore resources offered by financial education platforms like The Real World.
Kate Rhoten is a financial expert of what to do and not do with money as well as owner of 4 Walls Financial, A Coaching Focused Company. She has attended and completed Dave Ramsey’s Counselor Training. Follow Kate on Twitter @4WFCoach, reach out to her via email at kate@4wallsfinancial.com or visit www.4wallsfinancial.com. Feel free to share ideas or questions for future articles.
