Budgeting often feels a lot like dieting. We know it’s good for us, and we often begin our day with the best of intentions, only to end up feeling that our attempts have ended in failure. Sometimes our lack of success is due to a lack of will power, but more often, the root of the problem is that we are using the wrong method to achieve our goal.
There are hundreds of diet plans on the market. Some people swear by Weight Watchers, others by Jennie Craig. Then there’s Atkins, Suzanne Sommers, the Grapefruit Diet, and South Beach, each with its advocates. The same is true of budgeting. There are numerous approaches to managing your money, and a “one-size-fits-all” mentality is not the right way to approach budgeting.
We all have different “habitudes”* (a combination of habits and attitudes) when it comes to managing our money. These habitudes are shaped by many factors, including our personalities, families and life experiences. For example, if your parents lived through the Great Depression, you may have been raised with the mindset that savings is paramount and that spending money, particularly on items that are not necessities, should be discouraged. On the other hand, if you were raised in a household where money was always tight, you might spend liberally as an adult in reaction to an underprivileged childhood.
Our habitudes are also influenced by religion, society and media influences. Some religions dictate a tithing requirement and emphasize a simple, less materialistic way of life. In contrast, some cultures (think Beverly Hills, New York’s Upper West Side) highlight the glamour and allure of the affluent lifestyle. For many of us, QVC and the Home Shopping Network are hard to resist. For others, the infomercials that show poor, starving children in Third World countries appeal to our altruistic side and make us reach into our pocketbooks.
If we understand what our own “money habitudes” are and what influences them, we can develop money management techniques that work with our strengths. If you are detail-oriented, tracking each purchase and entering it into a computer program or spreadsheet might be the best way to keep tabs on your finances. For folks who are less meticulous, this method may be too time-consuming and overly burdensome. A better method might simply be a “strictly cash” system. At the beginning of each week, a set sum of money is withdrawn and used for all of the week’s purchases. When the money runs out, your shopping ability runs out as well.
Methods for managing debt and credit card payments can also be tailored to our money personalities. If you have more than one credit card and are carrying balances over from one month to the next, sound financial practice would recommend that you pay down your balances and try to eliminate your debt. A simple “by-the-numbers” system would dictate that you pay the minimum balance on each card every month and put any extra cash into paying off the credit card with the highest rate of interest. This works well for people who are mathematically-inclined and/or want to pay off their bills as fast as possible.
For others, however, using the “debt-snowball” method** provides better results. In this method, your credit cards are listed in order from the smallest balance to the largest. The minimum is paid on all cards and any excess cash is applied to the card with the lowest balance. Once this is card is paid off, surplus income is directed to the card with next-to-lowest balance until all of your cards are paid off. Although this method is not as effective, mathematically, as the “highest interest” one, it provides a psychological edge. Because the number of bills declines faster in this method, it provides you with more tangible results and the impetus to continue paying down your credit cards.
Whatever system of money management you choose, make sure it fits your personality and lifestyle. It may take several tries and some trial-and-error, but don’t simply give up if a particular method doesn’t work for you. To be successful, you just need to find the right tool for the job of gaining control over your finances.
Deborah Hamburger is the Volunteer Coordinator of Pro Bono Services at Jewish Community Services.
*”Money habitudes” is a phrase coined by Syble Solomon. A more in-depth discussion on this subject can be found Solomon’s “Money Habitudes: A Guide for Professionals Working with Money Related Issues.”
**This technique has been popularized by financial guru Dave Ramsey.