Budgeting – Your Foundation For Wealth (part 2)
| April 7, 2008 | Posted by Roshawn Watson under Uncategorized |
Knowing What’s Going On?
By: Roshawn Watson
Knowing is half the battle. It is hard to plug a hole when you cannot identify its location. Budgeting shows you the problem by allowing you to see your real expenses… not what you think they are. Unfortunately, we sometimes have selective memories when it comes to recalling just how much that last mall or electronics store excursion cost us. The little things do add up, especially over time. That’s why a budget is so imperative.
Those who win with money generally know what their expenses are, even down to nauseating details. That’s one of the reasons they have real money in the first place. In fact, many can answer yes to each of these three questions whereas most people cannot.
1. Do you know how much your family spends each year for food, clothing, and shelter?
2. Do you spend a lot of time planning your financial future?
3. Are you frugal?
(Adapted from Millionaire Next Door)
A dated but relevant article from the New York Times highlighted the fact that many people are not only ignorant of how much debt they owe but that they do not want to know. Here are some sobering statistics according to the 1998 Federal Reserve Board report on consumer finances.
-87% of families whose head of household is between 35-54 have debt
-60% have mortgages
-50% have installment loans (i.e. car loans) & 50% have credit cards.
Moreover, from 2001 to 2004, outstanding debt rose 33.9% (2006 Federal Reserve Board report).
Often, we do not realize the problem until it is too late. This is the case for many families now. According to the American Banking Association, consumers fell behind on car, credit-card and home-equity loans at the highest level in 15 years (I will provide my commentary on this report this Wednesday) .
For most people, the simplest way out of this problem is to cut expenses. However, you have to first identify those expenses. This brings me back to the budget. A budget is spending every dollar on purpose: giving every dollar an assignment. By both planning your expenses and tracking them, you can make sure that you are reaching your financial goals and identify any hindrances. The budget will show you the way.
Related Post
Budgeting Your Foundation For Wealth (Part One): What Happened to My Money
References
Stanley, TJ. Millionaire Next Door. 1996
Knowing What You Owe. New York Times. 2001
Federal Reserve Board Report. 2006.
Wednesday: Commentary on consumers falling behind on debt
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Good article. Understanding what expenses to cut is the key.
EF,Thanks so much for the positive feedback. It is very appreciated… BTW, I love your site. Friendly Regards,Shawn
Thats a good article and I particularly like this line "Those who win with money generally know what their expenses are". I believe that budgeting as an essential part of Financial Planning. A lot of people make a budget, unfortunately very few follow it. Following a budget is not the easiest thing to do, however with a little discipline you can achieve your objective.Take care and cheers,Robin
Robin,Thanks so much for the positive feedback and your insight. You are right, sticking to a budget is not always easy. As you point out, it does get better. consistent discipline makes good habits. Then, it is easy. Great comment, and I love your blog. <a href="http://www.fortunewatch.comwww.fortunewatch.com<br />Friendly Regards,Shawn
Clear analysis of a very common problem. If only they taught personal finance at schools.Best, Tejvan
Thanks Tejvan for the feedback. It's very appreciated!