Common Budget Planning Traps to Avoid

In order to ensure success in your cash flow plan I wanted to talk about 4 common traps or mistakes that people fall into which ultimately causes them to "get out of the game" with their finances.

I have been harping on "having a plan" for the past few weeks and those of you that have started making a plan I want to encourage you. Every month you are going to get better at planning. The first month is the hardest, I cannot urge you enough to continue this every month because it is so easy to give up.

Everybody that makes a Cash Flow Plan is not always successful to start. Some do have a natural gift at thinking through each detail and following their plan, but I would say most do not. 4 Common reasons why your Cash Flow Plan may not work:

1) Leaving Things Out

Each month is different. December is going to be much different than June. December has Christmas; June probably has a vacation. March might have a birthday; August your kids need new clothes for school. My point is actually think through your month. Plan it carefully. You have a specific number of money coming in, you have to tell it what to do. That includes mid and long term savings that you set aside each month such as: car, retirement, kids college, etc.

2) Over Complicating Your Plan

You do not NEED to put down $17.22 for toilet paper in a certain month. This is not only tedious and annoying, it is also unnecessary. As an example of what I do is actually lump in my toiletries and groceries together (I usually get them from the same store anyway).

3) Not Actually Doing It

Tell your money where to go instead of wondering where it went. Imagine if a coach did not have a plan for his team; there is a pretty good chance he would not be very successful (and probably fired).

4) Not Actually Living By It.

If that same coach made a plan, but then didn't care if his players actually did what he planned out, they would still not be very successful in this scenario either.

Cash Flow Planning helps avoid living on a crisis by crisis management system. It should not be a surprise when Christmas presents come up or when you need to buy clothes for the kids. These are not what I consider "emergencies." If you want to review my thoughts on emergencies (see Click Here and read the importance of an emergency fund.

Proverbs 21:5 - "The plans of the diligent lead to profit as surely as haste leads to poverty."

Don't Break the Chain

If you know me, you know I love Jerry Seinfeld. He is a world renown comic that is extremely driven and seems to be one of the best in the business. I always wondered how determined that a person needs to be to reach that high of a level at anything (basketball, CEO, etc.). I imagine that in order to take your "skill" to a top level it takes a lot of consistency and perseverance.

This article was really cool on Jerry Seinfeld (if you don't want to read it, see below, I am highlighting what I am talking about).
Seinfeld Article

Highlights were:

He said the way to be a better comic was to create better jokes and the way to create better jokes was to write every day. But his advice was better than that. He had a gem of a leverage technique he used on himself and you can use it to motivate yourself - even when you don't feel like it.

He then revealed a unique calendar system he was using pressure himself to write.

Here's how it worked.

He told me to get a big wall calendar that has a whole year on one page and hang it on a prominent wall. The next step was to get a big red magic marker.

He said for each day that I do my task of writing, I get to put a big red X over that day. "After a few days you'll have a chain. Just keep at it and the chain will grow longer every day. You'll like seeing that chain, especially when you get a few weeks under your belt. Your only job next is to not break the chain."

"Don't break the chain." He said again for emphasis.

I find that really neat that in something as creative as the comedic industry, it takes discipline and sticking to a system in order to take it to a new level.

Handling/Planning our money is extremely tough if you are just going to wait til 1 day a month to take care of everything. It is extremely overwhelming at times when you do this. I do not do the system that Jerry Seinfeld is talking about, however, I update my money system everyday. It takes me like 5 minutes. I am at the computer anyway (as I am sure many of you are right now...cause its a blog).

Consistency makes a HUGE difference in the way you see your money. Eventually it becomes natural to you and you enjoy the feeling of knowing where you stand with your money so much that you will hate not updating your money daily. Days that you can't get to your computer you will notice that you did not update and can't wait to get back and do it. I am not saying you should develop an OCD disorder, but like anything in life, consistency and determination can be a major contributing factor to success.

It takes time...

If you work for (yourname) incorporated and you are handling all the money for that company the way you handle the money in your life, would you fire yourself?

It is not effortless to know where your money is going. Farmers are good managers. They have to be or they will lose a lot of what they work so hard to gain. I really like what Proverbs says:

Proverbs 27:23 "Be sure you know the condition of your flocks, give careful attention to your herds"

You have to do this or you your animals will run away without you even knowing. At some point farmers would even need to hire hands to help them with this. IT IS THAT IMPORTANT.

According to the Wall Street Journal nearly 70% of all consumers LIVE from paycheck to paycheck. This means that they would not be able to make a mortgage, utility, or credit card payment if they missed a paycheck.

According to the American Bankruptcy Institute filings for bankruptcy is at an all time high with a new record being set virtually every year. I think these statistics are connected to the life that we now have that is very contrary to the life on the farm.

It is simple, if you don't have an accurate picture of where your money goes, you are bound to make a decision that will hurt. Trust me, I have made too many bad decisions that I definitely paid for.

Please don't just look at the balance in your bank account. I know A LOT of friends who have made decisions because of their balance and then a few days later they realized their rent check that they wrote a week ago just cleared and now they are in a STRESSFUL situation. Please please at the very least you need to get some sort of program or service that you can type in your transactions and track where your money goes.

You can check out www.clearcheckbook.com it is free and online which is a great feature. I personally use Microsoft Money and I love it.

If any of you are competitive or enjoy games like me, handling money is a game. Think about it, you plan out your money (let's say you have $3,000 coming in a month. Plan where all that goes before the month. $1,000 savings, $1,000 to giving, $1,000 spending. As an example). Then you just track it...see how you did. You will keep getting better and better.

The best part of the game is, that if you just do it, YOU WIN! You will be in the minority of people in America handling your money correctly.

Did you know that the average Japanese family saves 18.8% of their income? According to the Department of Commerce after 2000 the personal savings rate in America fell to -2.2% (the lowest in 60 years).