- The Washington Times - Saturday, January 3, 2004

Overindulgence at the holiday buffet leads to a New Year’s resolution to diet. Similarly, bingeing at the holiday sales often results in a vow to get finances in shape. Neither usually works, says Jonni McCoy, author of the book “Frugal Families: Making the Most of Your Hard Earned Money.” It usually is harder to put away the Visa card than it is to push away the dessert — and the word “budget,” for some, means all the restrictions of the cabbage-soup diet.

“Budgets are like diets,” Mrs. McCoy says. “People think they are not going to be fun and that they are not going to work.”

So if your resolution is to look at your spending and whip it into shape, don’t look at a budget as a one-size-fits-all prescription for a balanced checkbook. Instead, look at your family’s spending, find the money-wasters and devise a plan that will be realistic for you.

In fact, Mary Hunt, founder of the Cheapskate Monthly newsletter and author of several books on personal finance, says don’t even call it a budget.

“To me, the word ‘budget’ is like a straitjacket,” says Ms. Hunt, who also has a Web site (www.cheapskatemonthly.com). “It is something that someone else makes that I have to struggle to fit into. Like a diet, budgets are all about deprivation. Money is an emotional topic. That’s why if you call it a spending plan, you can have some control over it.”

There is a big psychological difference between the two, she says. Budgets are fixed, confining and absolute. A spending plan can be liberating, flexible and a guideline.

“A spending plan says to me it is my money, and I will decide what to do with it,” Ms. Hunt says.

Getting started

No matter what one calls it, taking a look at where one has been is the best way to see how to proceed. That means figuring out what is coming in each month, Ms. Hunt says.

Most people know what they make annually but fail to look at the real flow through their bank account each month, she says. To determine this, track what is deposited into the bank after all automatic deductions, such as taxes, health insurance and retirement-account contributions. That “I make $80,000 a year” is probably a more sobering “I make $5,000 a month.”

Next, track where the money is going. That means accounting for every penny and where it goes for a month or two, Mrs. McCoy says. The big items, such as the mortgage or car payment, will be obvious. The smaller items, such as $3 on a daily latte or $50 a week on lunches out, will be the real eye-opener, she says.

Ms. Hunt says the first two or three days of tracking your spending will be awkward and challenging, even somewhat embarrassing. She predicts neophytes will be tempted to cheat. Resist it and move forward, she says. After a few days, an amazing transformation will take place.

“You will begin to wake from your spending coma to see all the ways money leaks from your life,” Ms. Hunt writes in her latest book, “Debt Proof Your Marriage.” “That might feel great or somewhat painful. And don’t be surprised if you change your mind about spending on something because it is too much trouble to write it down.”

For couples, individual records should be kept. At the end of the recording period, both parties should show their spending records and determine the percentage of money that is spent in key areas such as food, entertainment, clothing and transportation. They should decide together what areas can be whittled down, Mrs. McCoy says.

For many families, agreeing on the limits is the hardest part.

“Emotionally, people have this unspoken belief if they look at their spending, they won’t be able to get what they want,” says Ruth Hayden, a St. Paul, Minn., financial educator and author of several books on women, couples and money.

Family members need to decide together what their goals are, which are different from their dreams, Ms. Hayden says.

“You need to discuss your own goals, along with goals as a couple,” she says. “One of you might think the goal is to retire and the dream is to travel, while the other might want to retire and start a business. I often hear, ‘This is not the way I would do it if I were single,’ but people need to realize that compromising is not acquiescing. Both parties may have to take a step and change.”

The best way to make sure both adults are focused on the goal is to have weekly business meetings, Ms. Hayden says.

She advises painting a financial picture based on previous spending and future expenses. Including monthly ‘have-tos’ such as haircuts and clothes is often a sticking point among gender lines, Ms. Hayden says.

“Men don’t want to believe that it costs that much,” she says. “Men have an easier time with fixed expenses, such as a car payment. But if everyone knows what things cost, they can accept it. A portrait of your money life will be easier to read.”

Again, looking at the big picture is not a one-size-fits-all prescription, Ms. Hayden says. A $60 haircut might be nonnegotiable for one family, while another might draw the line at purchasing premium ice cream instead of the store brand.

Ms. Hayden uses the example of gourmet produce for her own family, which includes four children.

“I once came home with a half-pint of raspberries that I paid about 52 cents a berry for,” she says. “That’s when we worked the food budget into two parts: regular and exotic. That way, if I want to get fancy, I can. I can buy organic raspberries, and it is not going to hurt anything else.”

Living on 80 percent

Ms. Hunt’s debt-proof spending plan involves looking at that monthly take-home pay amount and dividing it into a 10-10-80 formula. She says families should give away the first 10 percent to charity.

“It is so important,” she says. “Giving is the antidote to greed, selfishness and attitudes of entitlement.”

The next 10 percent should go to savings, even if you have a mountain of bills.

“Doing this says ‘I am more important than MasterCard,’” Ms. Hunt says. “It allows you to prepare for the unexpected, to repair the damage that debt may have done to your lives more quickly and to build a retirement nest egg.”

Savings — not including long-term accounts such as a 401(k) — should start with a contingency fund. The idea is to build up six months of living expenses so that when something unexpected, such as a layoff, occurs, it will not destroy your life, she says.

The remaining 80 percent is for living expenses. In addition to the usual categories such as food, housing and medical bills, a portion should be put into what Ms. Hunt calls a “Freedom Account.”

Semiannual or quarterly expenses such as car repairs, life insurance premiums or summer camp registration can pose a threat to even the most careful spending plan, she says. By looking at last year’s big-ticket checks and breaking them down into monthly installments, a family can fund its Freedom Account a whole year in advance.

“Believe me, you will be so delighted to put new tires on your car and not have to charge it,” Ms. Hunt says.

She says she hears from doubters all the time. If a family is in debt and unable to budget on 100 percent of its income, how can that family live on 80 percent? That is where adopting a frugal outlook comes into the plan.

There definitely are people with frugal personality types. One usually can find them first in line at a garage sale or stocking up on the manager’s special at the warehouse club. Others — and that includes Ms. Hunt and Mrs. McCoy — have to learn to pinch pennies.

“Some people are frugal and proud,” Mrs. McCoy says. “I didn’t grow up that way. I never had to do without. Then we were a double-income, no-kids family for five years. But when I wanted to stay home with my children, I had to learn a different way. Unfortunately, people think you have to have a frugal personality, but I think you can still maintain your sense of class while saving money. There is frugal, and there is cheap. Frugal is shopping at a thrift store; cheap is wearing the same jeans for 20 years. Frugal is eating out and still leaving an appropriate tip; cheap is not tipping in order to save money.”

Similarly, Ms. Hunt describes a life full of money-wasters such as credit-card interest and car lease payments until she and her husband, Harold, changed their thinking in the mid-1980s.

“There are spenders, and there are savers,” Ms. Hunt says. “A spender is not necessarily at the mall every day. It is the way they look at life. I used to look at a sale as a way to get more stuff. My husband, a saver, would look at it as a way to save money. You can change your habits, but you can’t change your [spending] personality.”

Michelle Jones, a North Carolina mother of four, also wasn’t born with a money-saving personality. However, as her family recently endured job changes and layoffs, managing money has become her passion.

Mrs. Jones is the editor of Betterbudgeting.com, a Web site she founded to help others in a similar situation. At one point, her family of six was living on about $25,000 annually.

“Being frugal can absolutely be learned,” she says. “The more you put practices into use, the more passionate you can become about it. But you can become too focused. I try to keep our life balanced. I try to save what we have.”

Mrs. Jones and her husband track their expenses several times a year to see where regular and unexpected expenses occur. They use an American Express card, which must be paid in full each month, to track items such as meals out. They stick to a basic plan that includes, among other entries, 30 percent of net income for housing, 10 percent for food, 5 percent for debts, 10 percent for charity and 5 percent for entertainment.

“Simple living sounds good, and there are people out there living off the land, but we live a normal life,” Mrs. Jones says. “If you budget for those things that come up, you will actually have more money.”

Beginning a budget

While every family and its expenses will be different, many financial experts say this is a good guideline to begin a budget. After a month or two of examining your own spending, you can see where money is being wasted or where categories can be adjusted

Suggested budget after taxes and charitable contributions

38 percent Housing (including rent/mortgage, utilities, phone, and other household needs)

12 percent Food

15 percent Cars (payments, gas, maintenance)

5 percent Debts

5 percent Insurance (life and homeowner’s)

5 percent Medical (bills and insurance)

5 percent Entertainment (including cable TV)

5 percent Clothing

5 percent Savings

5 percent Misc.

MORE INFO:

BOOKS —

• “MISERLY MOMS: LIVING ON ONE INCOME IN A TWO-INCOME ECONOMY,” BY JONNI MCCOY, BETHANY HOUSE, 2001. THE REVISED ISSUE OF THIS BOOK, A MUST-HAVE FOR MANY STAY-AT-HOME MOMS, HAS LOTS OF IDEAS ABOUT LIVING WITHIN A BUDGET AND HOW TO SPOT MONEY-WASTERS.

• “DEBT-PROOF YOUR MARRIAGE,” BY MARY HUNT, BAKER BOOKS, 2003. THIS BOOK IS ABOUT ACHIEVING FINANCIAL HARMONY FOR THE FAMILY BY IDENTIFYING GOALS, GETTING OUT OF DEBT AND PLANNING FOR EXPENSES.

• “FRUGAL FAMILIES: MAKING THE MOST OF YOUR HARD EARNED MONEY,” BY JONNI MCCOY, BETHANY HOUSE, 2003. THIS BOOK HAS GREAT IDEAS FOR FAMILIES THAT WANT TO SAVE MONEY.

• “THE FAMILY FINANCIAL WORKBOOK: A PRACTICAL GUIDE TO BUDGETING,” BY LARRY BURKETT, MOODY PUBLISHERS, 2002. MR. BURKETT USES CHRISTIAN IDEALS FOR PERSONAL FINANCE IN HIS MANY FAMILY FINANCE BOOKS, INCLUDING THIS ONE.

• “FOR RICHER, NOT POORER: THE MONEY BOOK FOR COUPLES,” BY RUTH HAYDEN, HEALTH COMMUNICATIONS, 1999. THE AUTHOR, A FINANCIAL PLANNER, EXPLAINS HOW COUPLES CAN COMMUNICATE BETTER AND AVOID MONEY BATTLES.

ASSOCIATION —

• NATIONAL FOUNDATION FOR CREDIT COUNSELING, 801 ROEDER ROAD, SUITE 900, SILVER SPRING, MD 20910. PHONE: 301/589-5600. WEB SITE: WWW.DEBTADVICE.ORG. THIS NONPROFIT MONEY-MANAGEMENT ORGANIZATION HAS MANY RESOURCES FOR PERSONAL FINANCE, INCLUDING BUDGETS, CALCULATORS, DEBT REPAYMENT PLANS AND CREDIT CARD ADVICE.

ONLINE —

• BETTER BUDGETING (WWW.BETTERBUDGETING.COM) IS A SITE FOUNDED BY MICHELLE JONES, A MOTHER OF FOUR AND EXPERT BUDGETER. IT HAS ARTICLES, TIPS AND CALCULATORS FOR FAMILIES TRYING TO GET ON A BUDGET.

• CHEAPSKATE MONTHLY (WWW.CHEAPSKATEMONTHLY.COM), A SITE FOUNDED BY FINANCIAL AUTHOR MARY HUNT, HAS TIPS, WORK SHEETS AND EXPERT ADVICE ABOUT SAVING MONEY.

• I HATE FINANCIAL PLANNING, (WWW.IHATEFINANCIALPLANNING.COM), A SITE SPONSORED BY ING NORTH AMERICAN INSURANCE CORP., IS A SITE WITH LOTS OF TOOLS FOR SAVING AND BUDGETING.

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