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Money and Budgets: It’s a Puzzle

The Money PuzzleThe subject of this week’s show is the most riveting subject on earth: Budgeting! I say this only half-jokingly because once you know the power and importance of budgeting—and most people don’t—it becomes an fascinating topic. Sure, a lot of fun stories involve mismanaging money and blowing your mortgage payment at the roulette table. But when you’ve found financial peace after years or decades of debt, you’ll never want to go back to being a profligate spendthrift—and when someone starts talking about budgeting, you’ll listen closely!

For most of us, our financial habits are inherited from our parents. We typically spend 18 years being exposed to one small economy (our family’s), and we practice the lessons we learn there for the rest of our lives. Unfortunately, most families practice very poor budgeting skills. Household debt is high, too few have emergency reserves, and the virtues of prudence and frugality have been all but forgotten. Every individual should consider the household they were raised in and whether it’s a model that should be followed. At the very least, it can be used as a guide on what not to do.

For example, my parents were extremely frugal people. My father was the personification of the ‘Millionaire Next Door.’ They paid for virtually everything in cash, and the only debt they ever carried was a 30-year note on their mortgage. They never spent exorbitantly on items, saved eating out for very special occasions, and squirreled away money their entire lives. The notion of buying a new phone because a marginally improved model was just released would be sacrilege to them.

My parents never worried about money because they managed it well. As John Maxwell says: “Having a budget simply means telling your money to do, instead of your money telling you what to do.” That is, in fact, what you see with people who are bad with money: their money runs their lives. They’re constantly shuffling money between accounts, divvying up expenses between this credit card and that, and figuring out what to sell so they can make ends meet.

The vast majority of people aren’t in debt because they’re poor. It takes money to get into debt. Most people in debt got there because their income doesn’t agree with their living situation. But rather than adjust their living situation—buying fewer luxury items, clipping coupons, canceling their cable bill—they decide to sustain it until they have no choice but to change. That is an extremely dangerous practice, and it’s unfortunately all too common.

If you’re just starting out in life, or if you’re established in life but find it difficult to make ends meet, I cannot recommend Dave Ramsey’s Financial Peace University enough. His 9 steps for financial peace are all you need to eliminate debt, budget well, and plan for the future. They include such things as:

  • Establish a $1,000 emergency fund as quickly as possible
  • Work toward building a 3-6 month emergency reserve
  • Save at least 15% of your income for retirement

These are basic, easy rules that have a profound effect on your immediate and long-term budgeting. But, of course, they don’t cover all topics. Certain life choices, like buying a home or investing in real estate and rental properties, require additional planning and unique budgeting techniques. For these, I encourage everyone to give me a call, ask me questions, and continue listening to the Jay Garvens Show.

7-19-2014 Law of Gravity: Money and Budgets

71-19-2014 Law of Gravity: In the Trenches with Your Budget

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About Jay Garvens

Standing at the intersection of our local real estate market and the nationwide financial industry, Jay Garvens gives you the complete picture of every story affecting today's mortgage market! From personal finances to the political decisions moving markets, tune in for a weekend dose of straight talk from Colorado's most candid mortgage industry commentator! Honest, unbiased, and always unpredictable, Jay explores every facet of today's mortgage industry with an approach that's refreshingly blunt and enormously entertaining!

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