Month: November 2011

David Bakke is a financial columnist for the personal finance website, Money Crashers. David lives in Atlanta, GA with his young son and actively works to improve his financial situation and build wealth.

Most experts say that you need a personal budget to improve your financial situation. While this can be extremely effective for many, there are other options out there to live a financially responsible lifestyle. Many years ago, I found myself broke with more than $20,000 in debt. When I finally decided to resolve my financial problems, I eliminated all of my debt in less than three years – without budgeting. To this day, I have never relied on a budget.

Getting on track financially and eliminating debt takes hard work, but you don’t necessarily need to make a budget to eliminate debt or to save money.

Five Reasons to Avoid Budgeting

1. You Need to Adjust Your Attitude

Work to adjust your attitude toward spending and saving money. Debt often accumulates because you spend more money than you make. To eliminate debt and to accumulate savings, you need to decrease your spending or increase your income. Decreasing your spending involves a shift in focus every time you prepare to spend money. Adjust your outlook to better understand how money enters and leaves your life, rather than focusing on creating a budget.

For many of us, the best way to get out and stay out of debt is to focus on increasing our income. While this isn’t a quick-and-easy fix and requires a hard working attitude, you can accomplish this goal by switching jobs, changing careers, or finding ways to make money during your free time. There truly is nothing like starting your own side business to help you pay off your debt and save for the long term.

As an example of implementing this strategy, in the past few years, I have launched two side businesses that I run from home. Last year, I earned nearly $10,000 from these businesses. Identify your skills and turn them into profitable business ideas. Before you start earning extra money, allocate the additional income. If you know that you will make an additional $1,000 next month, plan to use this money to pay off a debt or to boost your savings.

Adjusting your attitude towards saving and spending money can help you eliminate your debt and increase your savings. If you can combine your efforts – decreasing your spending while earning more money – you can achieve your long-term financial goals more quickly.

2. You Can Eliminate All Unnecessary Purchases

Eliminating unnecessary purchases allowed me to emerge from my mountain of debt. Instead of following a monthly budget, take a good look at every single purchase that you make and determine what purchases you can eliminate from your shopping trips. Do you stop by a convenience store every morning for a cup of coffee? If so, invest in a coffeemaker and make your coffee at home. Do you eat out every day of the work week? Consider brown-bagging your lunches to save money. These small purchases add up, and may total hundreds of dollars every year.

In addition to eliminating unnecessary small purchases, carefully review your options when buying pricier items. Before you consider making any major purchase – including a new car, computer, or a flat screen TV – ask yourself some questions: Do I really need this item? Can I get by without owning this item? Have I researched this purchase to make sure I am getting the best deal?

Take extra time to thoroughly research consumer organizations’ reviews of the items you want to buy. Talk to friends and family members about their similar buying experiences, and conduct price comparisons. Oftentimes, if you shop around, you shouldn’t have to pay full price. When the time comes to make the purchase, you will know you’ve done your due diligence.

3. Budgeting Can Do More Harm Than Good

While seeking to ward off unnecessary expenses, you may create an unreasonably difficult budget to adhere to, unwittingly setting yourself up for failure.

For example, say you decide to eliminate a $100 monthly clothing expenditure. This part of your budget will theoretically save you $1,200 in 12 months – however, necessity may force you to make clothing purchases during the year. This can lead to guilt about your purchases, and budget-breaking activities can quickly devastate a financial plan. If you cannot follow your budget, you may give up entirely out of frustration and revert to your old spending habits.

Instead of eliminating clothing from your budget, try instead to buy only the clothes that you absolutely need, at the best prices. This mindset leads to financial victories and helps you build momentum to stay on track until you can emerge from your debt issues.

4. Budgeting Can Lead to Missed Opportunities

Budgeting can lead to missed opportunities. If you decide to slash your monthly $400 grocery budget to $350, you haven’t learned any lessons about frugality or comparison shopping. Instead, investigate every possible way to save on groceries, including using coupons, joining customer loyalty programs, shopping at farmers’ markets, and buying generic items instead of brand names. You could even learn how to extreme coupon. This approach may save you more than $50 per month.

Budget rigidity leads to another type of missed opportunity. If you have to replace your television this year, but don’t have the purchase budgeted until the end of the year, you might miss an opportunity to purchase a discounted television during the Thanksgiving weekend sales. Making a major purchase during an annual sale can save you a lot of money. If you have to stick to your budget, you may miss some excellent opportunities to get the best prices on your purchases.

5. Eliminating Your Budget Simplifies Your Finances

Eliminating a budget simplifies your finances, saving you valuable time every day. When you follow a budget, you frequently have to calculate expenses to see if you have stayed on track with your budget. You may have to regularly spend time using budgeting software.  If you stop following a budget, your finances are immediately simplified – you no longer have to spend time tracking and analyzing numbers, and can instead focus on adjusting your overall approach to spending as you reach your financial goals.

Final Thoughts

If you continually struggle to solve your financial worries, budgeting may be your only option. Creating and following a budget does have its benefits, but if you can adjust your entire financial outlook and limit your spending, you may solve your financial issues in a more effective, efficient, and simpler manner.

Do you follow a personal budget, or do you avoid budgeting? What approach works best for you?

The following is a guest post by Lisa @ Frugalist, an Australian personal finance blog that promotes living well on a budget.

In the battle to save money and promote quality time, many families are forced to become creative in their down-time. Here are 7 ways to stick to a budget while entertaining the family.

1. Cookouts
Who needs to waste money on expensive restaurants, waiting for a table on a Friday night? For your immediate family, and perfect for when extended family is in town, consider a cookout – or a potluck type of idea when it’s not so nice outside. Add some games and you already have a good basis for such an event.

2. Did Someone Say Games?
Board games are a great family pastime, where you can certainly save money. Consider that Friday night dinner at your average restaurant – it would be fair to say that the board game (if you don’t have one/enough) would easily be cheaper than the meal (maybe half). Why not take advantage of that pizza special and see who will reign as board game champion in your family?

3. Cook Together
Food is certainly a pesky problem on a family budget, often when it comes to eating out. While not eating out that much is an obvious solution to sticking to a budget, you shouldn’t forget about the benefits of cooking at home. Let the children help as they are able; it can be a fun and education experience – for everyone!

4. Create a Stay-cation

It’s not necessary to leave home in order to allow your children to experience exotic locales. Plan a stay-at-home “trip” with meals, movies, travelogue films, and music based around the country of your choice. A stay-cation can be a fun way to spend some quality time together, while saving money. Granted, it’s not Disneyland, but it is a lot less expensive!

5. Entertainment Deals
When your family leaves the house to do something fun, take stock of adventures that are discounted. For instance, you might not like the normal bowling rates at your local lanes, but most places offer a myriad of specials on the weekend or during non-peak hours. You might be able to locate a great deal on bowling, miniature golf and a number of other fun family activities.

6. Free Outings
“Free” is better than “on sale,” and there are luckily many choices here as well. You could make the park a staple for your family, where sports and playgrounds offer plenty of options for all ages. Be on the lookout for free zoos or museums that are within driving distance, as well as free concerts and other family events nearby.

7. Movie Night
Sometimes the easiest way to save money is to stay in for the night. Designate one night each week as “movie night.” Rentals from your local Red Box or Blockbuster DVD kiosks are less than $2 per night. Purchase microwave popcorn and soda or juice, then let the kids haul out the sleeping bags and set up residence in front of the TV.
Consider cost-efficient options where you can stay in as a family. Trade the movie theater for a cheap rental. Have some of your children’s friends over for a home cooked meal, games, and whatever else you have planned. Maybe you could ride bikes around the neighborhood, play catch, and do some fun things outside. There is much to be said about the activities that can be enjoyed for very little money – that don’t require “going out.”

Lisa Kling is a freelance blogger for several personal finance sites, like Frugal Living, and on her own blog, Thriftability.com.