I realize that I still have unopened boxes from when I moved into the house 5 years ago. My closets and rooms are full. My rule is if something is coming in, something is going to have to go out. Every time I think about buying something for the house, like a recliner, even a kitchen gadget, I ask myself, “What will need to be taken out to give room for this new item?” It’s all about balance.
Traditionally, as a personal finance educator, I teach budgeting by focusing on balancing money coming in and going out of the household. For example, if we have $3500 in monthly income, then we only have $3500 to spend, save and share. Saving includes goals we are working toward, like retirement, children’s education, a vacation or a kitchen remodel.
How much do we really spend? Tracking where our money goes for a month or two helps give us real numbers to work with in a budget. Many times people do not actually know where that $20 bill in their pocket went. Spending also includes all the out-of-pocket expenditures like eating out or the quick stop before work for a cup of coffee.
Before spending money, focusing solely on the dollars, what if we think in terms of hours worked? Would it give us pause before spending? Would budgeting our hours worked make more sense? Would it help us look at our spending differently? For example, when finding a recliner, we would ask ourselves, “Is it worth it? Do I work enough hours to buy this item?” Here’s a scenario to illustrate the point of pause – Ben clears $20 an hour and works full-time. Ben’s rent is $750, so he has to work 37.5 hours to pay rent. That’s almost a week’s work! He tracked his food expenses and discovered he has to work 11.5 hours each month. He rarely goes out to eat. So how many hours does Ben have left to pay for utilities, goals, clothing, car maintenance, etc.? Can he buy the recliner he has been eyeing?
Guest Blogger: Sandra McKinnon