Sunday, September 23, 2007

The Purpose Driven Budget

Author Rick Warren authored several books over the past couple of years using "Purpose Driven" as a theme. The Purpose Driven Church and The Purpose Driven Life are two that quickly come to mind. Both books have been highly successful and have become standards for Followers during the new millennium.

Leveraging off Warren’s all things Purpose Driven, I propose the Purpose Driven Budget.

Let’s face it. Developing a budget is for most of us about as fun as sitting in the dentist chair, hearing the high pitched whine of the high speed drill and waiting for the drill tip to hit the nerve the Novocain missed. As a matter of fact, the dentist experience may be more pleasant.

But money has a very unique quality. It's fast. Lightening fast. Ever notice how fast you get paid and the next thing you know it's all gone? I have a way to tame it. To stop the magical and speedy transfer for your wallet or purse to places unknown.

Where is this all going? About 18 months ago, my wife Diana and I attended Dave Ramsey’s Financial Peace University being sponsored at a nearby church. At the end of the second class, our homework was to develop a budget, or as Ramsey calls it, a spending plan. A pure zero based spending plan. We needed to spend every penny of our income in budget form on something. Necessities, savings, donations/contributions and yes, even thoughtless spending. The key was is that it had to be spent on paper (meaning written form) and "on purpose" meaning some thought went into the process.

The procedure took an entire Saturday with both of us working to reach a magical zero at the end of each week and ultimately at the end of each calendar month. Remember, we were to spend every penny. But the key to the process was to spend it on purpose. What a novel idea.

The other key is you will see I used the phrase both of us. It was a team effort. Each previous attempt was done with me noodleing out a budget and then laying down the gauntlet with no buy in from my spouse. BIG MISTAKE. But while working together was a big piece of the puzzle what made it all happen and the cornerstone was a spending plan. And even more important, it had to be on paper and on purpose.

Frankly, that process was a breakthrough for me. And us. For years both of us had tried various forms of budgeting and ultimately ended up chucking it a few weeks into the process. But throughout those failed budgets was the misconception of trying to save the money, not spend it. Sure, it’s a matter of semantics. But for the first time, we had a budget that worked. It wasn’t perfect. It took a few months of tweaking to get it to behave in a somewhat predictable manner. But overall it worked.

So why the difference and why does it work better? First, it’s always more fun to spend money than to budget it. For the spouse or partner who doesn’t have money and finances top of mind, a budget is seen as a control technique. But a spending plan. Now that’s something they can identify with.

On paper and on purpose though does something else. Getting the numbers out on paper allows you to see where the money is going. It gets the numbers out of your head and in front of your eyes. It’s funny how your mind works better when it is working in tandem with one of your other keys senses. In this case your mind is working in tandem with your sight. You now see your spending plan, line item by line item. It can be revealing. Savings, groceries, clothing, charitable and church giving, gifts, travel and home expenses. The good, the bad and the down right ugly.

But for those who now have taken the time to do the on paper on purpose spending plan they can now see some surprising results. And for many, it’s the first time getting the long jumble of numbers out of their gray matter and in front of their eyes to deal with them on a line by line basis. In many instances, you'll find that you're doing suprisingly well. In other? Well you now see where you're going to have to make some tough decisions.

The Financial Peace kit contained a list of recommended percentages of your income that should be allocated for each of the categories. It suggests you need some money going toward entertainment and other fun categories. No need to beat yourself up when allocating some money toward those items.

But the whole process is to get the numbers in front of you and then compare them to what the recommended percentages should be. At that point, it’s simply a matter of establishing the priorities of lowering the amounts that are too high and raising the amounts that are too low. It’s a process that can take a few months or several depending on where the excess is. If it’s in spending on things like food or fun, you simply make the quick adjustment. If it’s asset items like homes, cars, boats or other expensive toys, the process may take longer and be more painful and expensive to adjust. But with the on paper on purpose process, you may now see for the first time why and where your money is going.

For those who are in financial turmoil, even after doing this process, it may be wise to pick up a copy of Dave Ramsey’s Total Money Makeover. The book will help you look at the myths of money and develop a plan that will allow you to gain control again. Dave will help you take baby steps that are logical and simple.

On paper, on purpose. The Purpose Driven Budget. The process that will ultimately guide you back toward financial peace and toward building wealth.

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