Summer weather is here, the sun is shining, and we’re ready to have some fun! We’ve been battling through quarantines, covid-19, video meetings, and the responsibility of being honorary home teachers. First, I want to express my appreciation to all of our essential workers and to all teachers. This experience has made me, and I’m sure many others, realize that your jobs are not easy. Every one of you exhibits the kind of bravery and dedication to which we should all aspire. The reality is that life has been more difficult in the last few months, and we’ve been working harder than ever…we’re ready for fun, we’re ready for leisure, and we’re ready for adventurous experiences. But wait, isn’t fun the opposite of my goals because I’m supposed to save, save, and save? Is there a way that I can balance planning for my future AND enjoying some of life’s adventure in the now?
Yes, financial prudence is an important aspect of our lives, but so is living. We have witnessed parents, grandparents, or other people in our lives literally scrape and save every penny. Even though they were financially responsible, they never created any memories, they failed to enjoy what they had worked so hard to create. I’m here to tell you that you can be financial responsible and have amazing experiences. The best way to have both is a strategy known as budgeting. It’s boring, I know. I can hear the boos now, and I understand. Budgeting is no fun, it’s not a new twist, or a life hack. It’s especially frustrating when you go over, but it’s strategy that has produced consistent results for generations. It keeps us accountable, both to what we value and to our future goals.
Studies have shown that many people will expend great energy to plan for their vacations but will rarely save for them. For instance, they encounter a flash sale for a cruise at $300, so they put it on a credit card. It isn’t that great a bargain if they’re now paying interest. The next question one might ask is, “Then how am I supposed to play hard?” I’m glad you asked, that’s where budgeting comes into play, and that starts with creating a plan. First, start by creating a basic budget to understand your cash flow. If you don’t already have a budget, it’s a great time to create one.
Budgeting buckets is a process where you create ‘accounts’ based on their purpose. This strategy is helpful on a psychological level, it helps you to mentally allocate specific resources for specific goals. Most importantly, it provides organization and structure. For example, you might have a generic savings account with a $3,000 balance, but with budgeting buckets, you might create two separate buckets, thinking of that savings as $2000 for emergencies, and $1,000 for vacations. As American Bankers Association communications director Carol Kaplan told Ally, “Research has shown that when people create accounts with a purpose, they are more likely to reach their goals.” You’ll be less likely to use funds that are assigned to a specific goal for another purpose. With the buckets system, you’ll be able to decide what portion of your total resources should be used for a designated purpose and be more aware of how that will impact your progress toward achieving your long-term financial goals.
You can create almost unlimited buckets to account for all sorts of goals. This strategy might help you to get some clarity around where you tend to spend unnecessarily, which highlights areas where you can cut spending and repurpose that found money! Small, repetitive purchases can often add up, but until you’ve engaged in some budgeting, it may be difficult to see exactly how these expenditures affect your bottom line. The best place to start is to create a list of fixed monthly expenses, like your home, utilities, and other necessities. From there, you can make a second list of your financial goals, savings, major purchases, and experiences that matter to you. Once you’ve identified your disposable income, you can create the buckets that tell that money where to go. You’ll be able to track spending and progress toward your goals.
I realize my advice will require time to implement, but you’re ready to hit the road, hop on a plane, or even a train. There is still an opportunity to have a vacation, but you’ll have to ask yourself a few important questions: How much will it cost? How will I finance the vacation? If I use a credit card, does my cash flow support repayment without disrupting other goals? Did I explore all alternatives to control cost? We should work hard and play hard, but most importantly, we need to do both responsibly.
For more information on this topic contact Jamil Sanders.