I realize that most people like budgeting about as much as they enjoy going to the dentist, so I’m not going to tell you that you need to create a detailed household budget. It would be useful, but most people just aren’t going to do it.
However, there is one simple money management exercise that only takes a couple of minutes and can be a big help to your finances. It also only needs to be done annually, so you really have no excuse to skip it.
You, or you and your spouse if you are married, would benefit from sitting down and deciding on your saving and spending priorities for the coming year. I mean broad areas of focus, not nitty-gritty details.
How much do we want to save this year, and for what? Do we want to save for a down payment on a house, our children’s college, retirement, or some combination of these goals? Which will be the highest priority? How much can we save, realistically?
Or, do we want to use any extra cash to pay down debt? Which of our debt carries the highest interest rate, which would then make sense to pay off first?
What will be our spending priorities for the upcoming year, for discretionary things like a new car, a vacation, gymnastics lessons for one of the kids, etc.? How would our money best be spent?
I believe this is a critical thought process, and a very important conversation between spouses: deciding upon and agreeing to a general road map for your finances. With this construct in mind, then, your daily financial decisions can be made in the context of your overall plan.
Out shopping at the mall and see a watch you’d like to have? Maybe you pass it up because you are planning a nice vacation to the Caribbean and your winter getaway is more important. A friend has his fishing boat for sale and the price looks right? No thanks, your car needs to be replaced this year and you don’t want to jeopardize that purchase. Should we buy junior the new hockey equipment he has been pleading for? Sorry junior, you need braces for your teeth, and you’ll benefit much more from those over the long run.
You get the idea. If you can decide and agree upon your top-level financial goals, then you will know where you are headed and why. You will also then spend your hard-earned money on the things that really matter to you and make you truly happy, rather than allowing your money to be frittered away on poorly-reasoned and wasteful impulse purchases. You will be in control of your finances, and build a better and more satisfying life.