Managing Money

[ailbhe]

Some people are good at it, some people are ok as long as there's plenty of money, and some people are dreadful at it. I have never really worked out what makes people so. I know people from poor backgrounds and wealthy backgrounds in all categories, as well as people from varying degrees of comfortable backgrounds.

Some people seem to learn to manage money by living in fear of poverty (raises hand) and some people seem to learn by good example (raises hand) and some people seem to learn by being involved in the financial planning and management of their families as they grow up (like good example but more hands-on) (raises hand again) and most people probably have some combination of all three going on.

But the part I can't work out is what makes people who know what bad management does, up to a point (a point between stress and hunger, say) nonetheless continue to manage badly. What do Groups A, B and C learn which group D can't seem to? Let's not assume that group D are delusional, or want to rely on other people in their lives to pick up the pieces - let's assume that their desire and intention is to be able to spend only 252 pence in the guinea and not forever hanker after the half-a-crown that isn't there.

Comments

[rmc28]

I have a very sensible well-organised friend who used to say "when I have no money I go and buy things to cheer myself up about having no money".

I can just about understand that idea, but I think for me I've managed to make the anxiety of not knowing where I stand outweigh much temporary pleasure in impulse purchases. I am surprised by how few of my friends, especially at uni when we talked about money more, didn't track their outgoings e.g. cheques noted once they were written not once they were cashed.

Tony prefers not to have to worry about money, and luckily I am usually able to arrange things so that he doesn't have to.

[kalmn.livejournal.com]

I have a very sensible well-organised friend who used to say "when I have no money I go and buy things to cheer myself up about having no money".

yes; this.

i am quite solidly in group d. i do not much like it here, but i can't figure out how to get out. i mean, yes, yes, write a budget, stick to it. how, precisely, do i write a budget? which things are required and which things are optional and i know i have cable and tivo and those look optional but i never go out to movies (seriously, one so far this year) and i mostly get books from the library and i live alone and shouldn't i get something fun? then, insert the hyperventilation and having to put all matters related to thinking about money away. also, don't even talk to me about whether or not dog related expenses other than food are optional or required.

i very much want someone to just come along, take all my numbers for everything, and make me a budget. so far, hasn't happened.

[rmc28]

I should add that "he used to say" this because he now has a good well-paying job, and he was telling me this when he was a newly-graduated student with no money, some years ago. (Also I don't know how much his girlfriend does the money in the relationship, as I do in mine).

As for "how to budget" you might find this useful:
http://www.moneysavingexpert.com/banking/Budget-planning

[feanelwa.livejournal.com]

I have levels of how necessary things are:

Level 1: rent, usual cost of food, utilities, expected vet bills, some movement of money into a savings account that holds enough for a large emergency vet bill, because helping a sick animal is more important than TV.

Level 2: things that aren't required for life but you'd be hard pressed to live without, like cable or seeing friends; other things that regularly come out of your bank account and it is non-trivial to stop, like charity donations.

Then you add up the things in level 1 and 2 per month or week, whichever period of time includes one cycle of whatever incomes you have. Then you take away that total from the amount of money you will get in that period of time. That's how much spare money you have.

Then everything else comes out of the spare money. If you have a negative amount of spare money, take things out of level 2 in the short term and make a plan for how to change things in the long term so that the list of things you can afford to have, includes the list of things you think you should have - preferably not by borrowing a big pile of money that you have to pay back later with masses of added interest.

The key is to put the "but don't I deserve X" thoughts aside and do the sums to find out what you can afford. Then when you have done the sums, you can hand control back to the part of you that decides what you should have, so it can make informed decisions. The world will not arrange itself so that you have enough money to get the things you think you should get; that's your responsibility. Like the kitchen analogy: you deserve chocolate cake, but you are the person who has to make the cake and clean the kitchen.

[rosefox]

I recommend reading the blog Get Rich Slowly for some really excellent discussions of different money management and budgeting styles, and the struggle between "I should skip every non-essential expense" and "Wait, having fun is essential".

Also, I've no idea where you live, but my city has free centers where you can go in and get help with money management, making a budget, etc. It's not quite "someone coming along" because you have to get all your paperwork together and go, but it's help where you most need it. Maybe the place where you live has a similar set-up.

[ailbhe]

I started our new-family budget, after a prolonged period of ill health, by putting everything from our bank statement into a spreadsheet for two months and then dividing it into categories. I used to have a blank sheet knocking around as an example, if you're interested.

[the0lady.livejournal.com]

Pother, you beat me to it.

I'm happy to share my sheet too, if that helps.

[the0lady.livejournal.com]

I think what you're missing here is Step One. Lots of people who are good with money advise those who are not so good with money to "budget" because they make, to them, the pretty reasonable assumption that the people in need of a budget have some basic information about ther finances - which actually they don't, or they wouldn't be in this mess!

Herewith, Step One:

- Print out your last 6 bank statements. If you've had a very unsettled year (job loss, large expenses like buying a house, moving in with somebody and your spending habits changing suddenly), make that 12.

- Go down the list of debit items in each statement and identify some basic categories. Examples: rent, utility bills, supermarket bills, transport/fuel costs, random cash taken out of cash machine, clothies/books/CDs/other "shopping".

- Carefully add up exactly how much money you have spent on each category each month. This is best done by typing the figures into an Excel spreadsheet.

- Calculate an average per category across all months. This is how much you spend. Added up, these averages are your average monthly outgoings.

- Do the same excercise on the credit side. If the average debit is larger than the average credit, you have a problem that needs addressing.

If the average debit is smaller than the average debit but you are still overdrawn or otherwise in debt, you are doing one of two things: a) leaving shit out, or b) farming it out to credit cards. Start again, this time taking ALL of your expenses into account.

Once you've done this exercise honestly and are sure that you know exactly how much you spend and earn each month, budgeting is a doddle - it's just a case of making sure the former fits into the latter.