Budgeting for not-entirely-smart folks

It's that time of year for everyone to start nagging each other about budgets. Eat in more often. Save your money. Cut up the credit cards. Is budgeting really practical, however? Aren't we just too busy to really bother keeping track of our money? Of course, my answer is no.

It's true that times have changed. In terms of money management and responsible spending, it has changed for the worse. Whereas our parent had to save their money to buy a car, today we can go get a loan for more car than we can afford. And consumers tend to overspend in lots of areas of their lives. Instead of asking themselves if they can really afford to make a major purchase, they often just look at the monthly payment on the item and go forward with the purchase.

If we keep spending at the pace that we are, we will have nothing left for retirement. Bankruptcy filings will continue to grow. Overall, personal responsibility will continue to decline, and who will help up then.

That's why budgeting is so important. And I'm not talking about the kind of budgeting that requires a fancy computer program or OCD-like attention to details. It's a simple paper and pencil exercise, with the help of a calculator.

Take a piece of paper and make columns for the most common things you spend your money on: groceries, fuel, utilities, dining out, and the like. At the end of each day, write down what you spent that day. Make sure you include the latte after lunch and the afternoon snack at the snack shop. At the end of the month, add up your columns and see what you spent. I bet you'll be surprised!

This little exercise only has to be done for a couple of months before most people "get it." We're spending a lot more money than we realize on a daily basis. A couple dollars here and a couple dollars there don't seem like much until you add up the whole month. With this information in hand, you can make positive changes to your spending patterns which will benefit you significantly in the long run.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.
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