Tax Alert: Day 4 - Who's the Boss? You or Your Money?

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Give Every Dollar a Job

We've covered the basics of a budget. You have your inflows, and your outflows. Sandwiched in the middle is Rule One: Give Every Dollar a Job. YOU are the boss.

Imagine a business where there are no defined job descriptions. Engineers work on the marketing plan, or determine how to amortize a lease for the accounting. The marketing employees love spending time on the factory floor looking at the big, shiny machinery. The accountants (with all their personality) enjoy spending their time trying to sell the product to customers (imagine how well that's going).

I think you get the picture. This is not a company that has mastered cross-functional team theory. This is a company with no defined employee responsibilities. You wouldn't want to work there--and your job wouldn't last long if you did. It is only a matter of time before a company without properly defined roles is going under.

A household, where the dollars' roles are not properly defined is destined for similar financial failure.

Our dollars cannot just go about their business doing whatever they please.

Not even a little bit.

With spending ever easier, it has become even more important that we consciously assign each of our dollars a job to do for the month.

Let's say that $2,000 comes into your hands during the month. You must assign each and every single, solitary dollar a job. Some goes toward rent, and do their job during that very month. Other dollars will go to saving for a new vacation. Some dollars have the job of just being "ready" for an emergency (much like firemen, right?). You'll have some dollars that sit around for six to twelve months before finally doing something (saving up in anticipation of car insurance premiums, and Christmas come to mind). Every dollar still does something. No dollar goes without a job.

Ever. Even the fun money.

You Still Need Some Breathing Room

When my wife and I first started budgeting, we made the same mistake most beginners make. We didn't allow any breathing room. I have to give credit to my wife though--she was much more dedicated than I was. I started noticing that I was stressed about money. I was stressed about spending it. I was stressed we wouldn't have enough of it. Frankly, it was getting to me. I felt like I couldn't justify spending money on anything.

This is a dangerous situation. I was struggling and wanted to quit!

We were assigning every single dollar a job. Every job appeared so important! I felt like I couldn't buy a candy bar. I felt constricted. After a month or two of working like this, I talked with my wife about it. We decided each of us would get a little bit of "fun" money to spend on whatever we wanted--with no accountability.

Amazingly, the amount can be small--but it does need to be there! We settled on five dollars each per month. Five lousy dollars and I felt like I could buy the world. Learn from our mistake. Every dollar needs a job, and every budget needs some breathing room!

I've found too often that when people are unrealistic with their budgeting (as my wife and I were), they give up. Why? You can't do unrealistic things for a significant amount of time when you're living in a brutally realistic world.

The intentional lack of accountability to your spouse is key. It doesn't matter if one of you is the complete breadwinner of the family, once it hits the budget, it belongs to the household. Only once you assign fun money to each other do you once again have your "own" money.

(Guys, it's very romantic to spend your fun money on your wife.)

I can't stress enough how important it is to have your dollars working for you instead of just doing their own thing. As you implement Rule One, you'll notice that your dollars work harder, longer, and stronger for you. They're more efficient. They don't put up a fight. They do what they're told. They're basically the opposite of your teenager.

In this technologically progressive (and fiscally-irresponsible) society, you need to use something that will allow you to assign your dollars their jobs with ease. You can use a pencil and paper, my software, envelopes, a chalkboard - whatever. Just make sure every dollar gets a job!

We've talked a lot about assigning your dollars jobs, but we didn't mention the process by which you do that. Tomorrow will be a special day because we're going to focus specifically on budgeting in a marriage. If you're single, well, tomorrow you'll learn what you'll do once you're married (or you can take a day off).

Action Steps:

Create a list of your dollars' potential "jobs." These will be your spending categories.

Promise yourself that you'll allocate some dollars to your "Fun" category. Your budget's longevity depends on it.

Warm Regards,