Budgeting Bulimia

As the President is so quick to point out, ten years ago, there was a large budget surplus.  Naturally, the government went into a massive cycle of lifestyle expansion.   That expansion, combined with lower tax revenue and a recession has brought us from a $230 billion surplus to a $1.4 trillion deficit.  That’s a bit above the trivial level.  A definite binge.

In Minnesota, there was a $2 billion surplus just a few years ago, which was obliterated by, once again, government expansion and a recession.   During the boom years, government programs were enacted with no thought to sustainability.   Nobody thought about the fact that a surplus isn’t a balanced budget, either.   We just kept adding to the budget, thinking the good times would last forever.  Another binge.

Last year, the governor of Minnesota had to “unallot” money from the budget.  He went through the budget with a red pen and struck line items until the budget was balanced, a requirement in this state.  This infuriated his political opposition.  They were not prepared for the purge.

Federally, the purge hasn’t happened, yet.  Give it time.  Excessive spending using imaginary money can only last so long.  It will stop.  The longer the binge, the harder the purge.

Families are doing the same thing. Four years ago, I got a raise and immediately bought a new car.  Binge.  Two months later, I was laid off and had to cut everything possible to make ends meet.  Purge.   Tax refunds, inheritances, drawings.  So many of these things give us an excuse to commit to long-term expenses without planning for long term sustainability.  If I inherit $5000, is that a good time to add $500 to my monthly bills?  No!  That’s an unhealthy binge.   In ten months, if the money lasts even that long, I will be forced to purge something to keep afloat.

The responsible, healthy way is the same as healthy, responsible eating.   Diet and exercise.  Spend less, save and earn more. That’s the strategy that will let you level out life’s valleys, instead of puking all over the floor.  Don’t spend every cent you see, just because it is there.  Set some aside for a rainy day.

Leave the binge-and-purge financing to the politicians.

Update:  This post has been included in the Festival of Frugality.

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Balance Your Borked Budget

You’ve got a budget worked out to the penny.  You know every dollar that comes in and every dime that you spend.    All of your bills are getting paid on time.  Then, one day, it all comes crashing down. Your budget is no longer even a reasonable approximation of your cash flow.  You’ve got no idea what’s coming in or going out.   Bills are piling up and fees are digging you deeper in debt.

What happened?  More importantly, how do you get back on track?

The first thing you need to do is identify the problem. What, exactly, went wrong?  Did you lose your job or need a surprise botox injection?  Your car died or your kid developed a hockey habit?  Sports car or shoe sale?  Whatever the cause, if you can’t identify it, you can’t deal with it.  Some of the possible problems may be things that can get clubbed and buried in the backyard, while other things may be expenses that won’t be going away.    If it’s a one-time expense, you can simply refocus your debt repayment to take it into account.  If it’s an ongoing expense, you will need to adjust your other expenses, possibly in a drastic manner, to make ends meet.  You can’t know which way to go without knowing what caused the problem.

Next, commit to to making it right. Don’t leave it at a mere commitment.  Actually commit and actually do it right. Future-you is counting on you to fix the problem before he gets screwed.   This is important.  Without firm–and real–commitment, nothing else will matter.  At best, you will be treading water.  At worst, you will drown yourself in unanticipated bills.

Cut everything extra.   Every expense–whether it’s your mortgage or your maid–is a rock in your pocket, one hundred miles from shore.  How much can you carry and stay afloat?  This isn’t the time to keep paying something because you enjoy it.  If it isn’t absolutely necessary, it’s got to go.  Cut your internet, cancel Netflix, learn to shut off the lights when you aren’t using them.   Is the early termination fee less than 6 months of your cable bill, your satellite bill?  Cancel it.    You can always sign up again later.  This is the time to be ruthless.

Is there a way to bring in some extra cash?  Can you pick up a second job, or land a freelancing gig?  If you’ve suddenly found yourself unemployed, can you spend some time on being a Mechanical Turk?  Sell all of the things you don’t use anymore, or, more likely, never should have bought in the first place?  Do you have a spare kidney?

Remember, this is a drastic situation calling for drastic measures.  Your future is depending on you.  Don’t make him come back and kick your butt.

Update:  This post has been included in the Carnival of Personal Finance.

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