Why It’s A Good Idea Not To Complicate The Budget
Hey MYC readers, I’m ba-ack! Miss me? I know I’ve been away from the site a little while, and as I told you a couple months back, I’m on a part-time basis now. However, my summer was incredibly swamped with work and a script I was working on for myself. I’ll be heading out to L.A. in October for a convention of sorts and spent a lot of time preparing for that. But, now that I’m all caught up with that stuff, I’ll try to be on a more regular writing schedule with MYC.
One thing I’m also catching up on is the reading of personal finance blogs. And I came across a new blog – for me – that is pretty interesting and has a lot of cool ideas. But, there’s one post in particular I wanted to talk about. Wojciech Kulicki @ Fiscal Fizzle discussed using life roles to organize your budget. If you’ve got a minute, please take a quick read. Go on…I’ll wait.
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Ok, so now that you’ve read it, let’s discuss it.
First off, if you’ve read MYC for awhile, you know I’m a complete advocate of the Franklin Covey 7 Habits of Highly Successful People program. I think there are a lot of lessons we can take away from Stephen Covey’s brainchild, including some concepts towards personal finance. Keep in mind, I’m not a licensed trainer of the 7 Habits program, so the information I share is based on my own experience with the course. But, one of the key components of the 7 Habits program is that of life roles, which basically states that at any given time we take on various roles in our life that complete us.
For example, I’m a daughter, a sister, a friend, a banker, and a writer. Throughout the day I am all of these things, but I may spend more time one day focusing on a couple of these roles as opposed to all of them. The 7 Habits program states that in order to build better relationships with ourselves and others, we need to focus on nurturing these roles each week, but not so many of them that we overwhelm ourselves. These roles are what are referred to as “big rocks.” These are the things we want to spend our time focusing on while everything else, i.e. work, school, and other non-relationship things, are considered the small rocks. You fill your bucket with the big rocks first and then the little rocks fit around them.
So, each week when I sit down to plan out the next week, I include 3-7 roles that I want to work on that week. The 7 Habits program doesn’t recommend more then seven because it’s overwhelming and can distract your focus on what is important for that week. Personally, I think seven is too many. I think it is better to go with 3-5 roles for the week and spend a little more time with each one, but living the habits is all about what’s best for the individual.
At any rate, Fizzle Finance takes this concept and applies it to that of budgeting. He says that he and his wife wanted a family budget and used the concept of life roles to really hammer out the details of their budget. If you read the article, the product of this brainstorm was a budget with 13+ categories, many of which had subcategories underneath them. In addition to that, they’re not even financing all of those categories right now, so some end up with $0 in the column.
For me, that’s just too much. I feel very overwhelmed just considering the budget they look at every month, much less trying to incorporate something like that into my own budget. Do I think they’ve taken the program too far? Absolutely not. I love the way he’s taken the concepts and applied them to finance, because I’ve done the same myself. And this seems to work for him and his family, so more power to him. But, it’s not for me. And, I definitely don’t recommend it for those new to budgeting.
Starting out in budgeting is a very fragile thing. It’s easy to get overwhelmed and frustrated with the numbers, and sometimes, it’s just downright hard to face the truth. No one likes to watch the money they’ve worked so hard for just going down the drain. Sometimes, ignorance is bliss. That’s the mindset people need to overcome if they ever want to get ahead financially. So, a budget is important, but a simple budget is best to start out with.
Having 13+ categories with a slew of subcategories underneath may be a complete budget that focuses on every aspect of your life, but it’s also something that can most likely be condensed and more manageable for the untrained beginners. Typically, a budget when you first start out should contain the essential categories, listed in no particular order:
- Standard Bills - rent or mortgage, utilities, cable, etc.
- Living Expenses – groceries, personal care, clothing, etc.
- Savings – personal savings, CD’s, investments, emergency funds, etc.
- Transportation – car payments, car insurance, oil changes, maintenance, etc.
- Debt Repayment – credit cards, student loans, etc.
- Home Care – home repairs, new appliances, household products, etc.
- Entertainment – eating out, movies, date night, etc.
There may be other categories you feel are important and you want to add, but these seven categories cover a good chunk of what a simple budget needs to have in order to be successful. It’s not set in stone because each budget is personal and should reflect what’s important to you, but the point I’m trying to make is that having too much on a budget could throw you off. In our busy and hectic lives, keeping up with expenses can be tough and a little mundane. Don’t add to that task by adding more categories then you can possible keep up with. It’s always a good idea to set yourself up for success, so take an uncomplicated approach to budgeting when you’re just starting out.
What are your thoughts? When is a budget too much? When is it too little? How do you like the life roles being a part of the budget?
Photo by Jeff Keen
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Hi Kristy–
Thanks for taking a look at my post & blog, and doing such a thorough analysis of my approach to budgeting.
I certainly hear what you’re saying, and it’s a bit of a contradiction in my own life as well. Let me explain:
I am a big advocate for simplicity and streamlining financial processes. When I kept a “traditional” budget (assigning limits to my spending), I used only 10 categories with no sub-categories. It was about as simple as I could get it.
About a year ago, we switched over to an envelope budget. Since then, I’ve found that the opposite holds true–we are more effective with the budget when we get very specific, not general. This is because each envelope functions as a “mini-savings” account for a very specific purchase (like, for example–paying our taxes in April, or the car insurance bill next month).
The application of roles was a natural extension of this because it allowed us to categorize all the expenses into things that made sense in our own life. If you notice in the original post, I make a distinction between “administrative” categories like bills and “role” categories, like family (which I’ve kept to 8).
I agree with you that people starting out will want to keep their budget simple. Once they get the hang of it, this may be the next step?
I hope I’ve explained a bit better our decision to be so “complicated.” :) I welcome more question about what we do and I’m excited to see what your readers think!