The first and most important element in taking charge of your finances is developing and sticking to a budget. (Do I hear groans and yawns?) But this task is not as hard as it might at first seem, especially if you can draw on skills you’ve acquired from other life experiences.
A successful household budget requires careful and critical evaluation of cash and credit behavior, developing a plan for change and adhering consistently to your plan. Doesn’t that sound a lot like the dieting plan on your New Year’s resolution list every year? The process of budgeting is really just a financial diet, so even if your diets haven’t always been successful, you can still put your dieting experience to work in your financial plan. Try applying a few familiar tidbits of dieting wisdom to your household budget.
– A little here, a little there adds up.
Most diets suggest that you keep close track of what you eat since it is often the little snacks that sneak on the pounds. Similarly, careful tracking of money coming into and going out of your household can reveal small cash leakages, like that $3 afternoon latte, which can add up to a lot. A mere $50 per month for 40 years at 8 percent interest will grow to $200,000!
– Starvation diets always fail in the long run.
Diets work best if you treat yourself now and then. In your financial diet, it’s important to do the same. Just be sure you don’t go overboard. Many a diet has failed due to a few too many exceptions.
– Eat before you’re hungry.
My biggest dieting mistake is skipping meals. A little later, the snack machine down the hall from my office is calling to me. Successful diet plans always allow you eat regularly so you aren’t tempted by extreme hunger. In finance, the same is true. If you wait until all your bills are behind, it’s very difficult to achieve financial success. However, if you plan in advance, you can arrange for lines of credit that will get you through the tough times.
– Don’t keep snacks in easy reach.
The worst thing for a diet is to have a pantry full of goodies you can’t resist. Similarly, you can control financial problems by avoiding the situations that got you in trouble in the first place. Financial advisors recommend that you pay yourself first by having your savings dollars go straight from paycheck to investment account before you have a chance to use them for something else.
– Fads only work for the person who sells them.
"I lost 50 pounds eating nothing but grapefruit." "Eat all you want and lose weight." The diet designers are always looking for new ways to get us to buy their books and other products. While there are occasional surprises, most of these fads aren’t worth the time it takes to read them. In the financial arena, it’s no better. I’m truly sorry to be the bearer of bad tidings, but no, you cannot make all your debts go away without paying them. No, there is no investment that will miraculously turn you into a millionaire with no risk. No, you can’t spend more than you earn indefinitely.
– Keeping it off requires a change in behavior.
Like many, I belong to a health club, but I’m not their most regular patron. It’s so easy to think of reasons not to go. Needless to say, without the regular exercise routine, my diet doesn’t go anywhere very fast. In financial planning, the same is true: you need to have a plan for changing your behavior, and stick to it.
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Vickie Bajtelsmit, Professor of Finance, Colorado State University College of Business, firstname.lastname@example.org, 226-1473