Ah, it’s a new year. True to form, many of us will make a new list of resolutions and remember that hope springs eternal.
Sure enough, better money management made a return visit to my new year’s resolution list. Last year, I updated my money management software and figured out a better way to keep track of our family spending. But I’m back at it because I didn’t quite get it right the first time. Some of the spending categories I created on Quicken don’t make sense to me, and some of my internal transfers don’t make sense to my software. And I still haven’t mastered the discipline of creating useful budgets for specific spending categories.
I don’t see myself as an extravagant spender. We raised a family without incurring much debt beyond the mortgage, which was small by today’s standards, on the only house I’ve ever owned. My mother’s frugality drawn from her German ancestry apparently rubbed off on me. But keeping track of spending, and living within the constraints of budgets for items such as dining and entertainment, has not been my strong suit.
All of us are inundated with financial advice, and much of it can be annoying to read at times when we are facing unusual expenses, a loss of income, or expenses for a vacation we probably shouldn’t have taken. We know what we need to do, but we can’t (or won’t) always do it. But its easier to avoid pitfalls if we keep within budgets for discretionary spending such as travel, concerts, and home improvements.
A cousin last week posted on Facebook a simple mental tool she uses to guide her spending decisions in her early retirement years. The folk wisdom advises a mental analysis of “wants” by placing them in one of these four categories:
• Top Dollar Item: I really need it and I love it.
• Bottom Dollar Item: I really love it but I don’t need it.
• Remaining Dollar Item: I don’t really need it but I love it.
• Non Dollar Item: I don’t really need it and I don’t love it.
Simple enough, it seems to me. In fact, I’ll be looking back on my spending over the past year with those four categories in mind. It will be a good, although perhaps painful, discipline that might help me spend more carefully in the year ahead.
I learned one other important financial lesson from my mother, in addition to frugality: a little savings can go a very long ways over the course of decades. During the boom days of the 1980s, when family expenses always threatened to overwhelm our income, I tucked away more than I thought I could afford in a company-sponsored 401(k) account. In later years, when my dear mother required extended care in an assisted living home, I saw the value of the nest egg she and our father had created for their care. That experience has made me thankful for my own long term dedication to saving.
My resolution is to prepare for those years of scaled-back income by doing a better job of managing my budget to pay for the pleasures of retirement and to prepare for hard times. In getting this far without a personal financial crisis, I’ve enjoyed more lucky breaks than I’ve deserved. And I’ve benefitted from the wisdom of my frugal ancestors. Now it’s time to master the budget.