The Single Most Powerful Personal Finance Tool

If a tool existed that would give you a strong sense of control over your finances and help keep your financial stress low, wouldn’t you use it?

If this tool served as a financial road map, showing you clearly how you could live within your means, generously support the causes you care about, and save or invest for future goals, wouldn’t you use it?

If this same tool helped create a sense of financial teamwork and trust in your marriage, wouldn’t you use it?

And if you knew that this is the absolute perfect time of the year to begin using such a tool, wouldn’t that seal the deal, telling you that you absolutely need to begin using this amazing tool?

What is this magical tool?

Why, of course, it’s the lowly, much maligned, much misunderstood budget — or, as I prefer, Cash Flow Plan.

What rich people know

When some people think of a budget, they think only certain types need one. People with lots of debt. People with a low income.

The wealthy? No way, or so they think.

In fact, one of the most interesting findings from the classic book, The Millionaire Next Door, is that over half of all millionaire households use a budget to guide their finances.

As authors Thomas Stanley and Wiliam Danko explain, “Planning and controlling consumption are key factors underlying wealth accumulation…Operating a household without a budget is akin to operating a business without a plan, without goals, and without direction.”

Plan to succeed

Haven’t ever used a budget? You could start today.

A good starting place is to read the article, Zero-Sum Budgeting: Giving Every Dollar a Job. (Note: The popular Mint budgeting tool is shutting down in late March. For alternatives, read this article.) On the Resources tab of my site, you’ll find my Recommended Cash Flow Guidelines, which will help you develop your plan.

The Guidelines cover households earning from $75,000 to $200,000. Just use the income level that’s closest to yours.

You’ll see that these are ideal plans, meaning they assume no debt other than a reasonable mortgage.

If you have other debts, you’ll have to adjust your spending in other categories to allow for the debt payments.

But, but, but…

Whenever someone comes to me with a financial dilemma — they’re deep in debt, can’t find any money to save, can’t stop fighting about money with their spouse — I always ask whether they’re using a Cash Flow Plan to guide their household finances. Most of the time, the answer is no.

And the “no” is often accompanied by a quizzical look as if I didn’t understand the question. “But what I was really asking…”

I did understand. It’s just that I need more information. Objective, factual information.

To be sure, there’s a ton of emotional stuff involved in managing money — temperaments, moods, stressful circumstances, the emotional imagery used in advertising. We often get in trouble with money when emotion overrides logic.

A well-designed Cash Flow Plan gives us the logical, factual information we need to live within our means, be generous, save and invest, avoid debt, and spend smart. Assuming there’s enough income to meet basic needs, that’s true for every income level and household size.

Are you the type?

I firmly believe everyone would benefit from the use of a budget. Rich or poor, young or old. Everyone.

It isn’t drudgery, and it isn’t something you go on like a diet. It’s simply the single most powerful tool available for successful money management. Why not start putting this tool to work in your life today?

And why not teach your kids about budgeting? You may be surprised to know that even very young kids can be taught some of the essentials about budgeting, and the sooner they learn these lessons, the better. I explain how to do this in, Trusted: Preparing Your Kids for a Lifetime of God-Honoring Money Management.

What questions do you have about using a budget?

If you haven’t done so already, sign up for a free subscription to this blog. Twice a week you’ll receive ideas and encouragement for using money well.

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