Tuesday, July 20, 2010

Money Management

Have you ever wondered why a new financial plan you have tried might not have had the results you expected?

I had a manager years ago who taught me some principles that I have found to be helpful in many areas of life for all the years since. New terminology may have renamed or updated them but the concepts remain solid.

The four fundamental principles of management:

Another key element critical to management success is the following truth:

You can’t manage what you can’t control.

We’ll take each of these individually and then pull them together. Understanding and mastering the concepts will improve your effectiveness and maybe give you some “ah ha” insights into where your current strategies may be a little weak.

Plan – Planning is the first step of any effective project. I would love to be able to tell you that In The Trenches has the best and the only budgeting plan that will work for you. If I was a salesman at heart I may just do that. But, the truth of the matter is that there are many good financial planning books and resources available. Being familiar with a number of them gives options that are helpful in the planning stages. Different charts, explanations, and computer programs can assist in analyzing the current situation, form new goals, and make a detailed plan. The most important thing is to find or create one that makes the most sense and feels comfortable and easy for you. This is very important in helping find something you can and will stick with. A budget will not work in the long term if you have to struggle and spend miserable hours to record or review last month’s expenditures.

Organize – When you have a plan written down it’s time to organize the specific details and changes needed to insure that you take what is on paper and make it a reality. If it won’t work on paper it won’t work at all. If expense items have been forgotten or unrealistic amounts allocated it simply won’t work. Some of the things you may need to organize are:

1. Enlisting assistance from professionals.
2. Contact any bills or providers that may require a change in payment amount or service.
3. Make sure bank accounts are set up in a way that facilitates your goals. Do you need a savings account for Christmas money? Have the extra fees from a debit card cost you more than the convenience is worth?
4. Call a family meeting to review the budget, expectations, and each person’s role in the success. This doesn’t need to be confusing with charts and graphs but that might not be a bad idea. My son was doing unit pricing comparisons at age 6. A family meeting could include a statement such as “Since daddy/mommy got laid off we need to cut back expenses so instead of buying lunch at work/school everyday we will now all take a sack lunch”. In this example the other things needed to organize would be making sure the grocery list has all the items needed and letting people know who will prepare the lunches. The family may not initially appreciate the change but by knowing why and how it will affect them will foster the teamwork needed to gain their cooperation.

The list of things needed to organize will be as individual as your own family so grab a pen and paper to complete this step.

Lead - The primary function of leading is to set an example. As the financial manager you will set the pace and give the clues to those around you. As they say, “Actions speak louder than words”. If the leader is worried the followers will worry. Adjustments may be difficult to make but the leader will help or hinder the transition. People, especially children, are very aware of fairness. Even parents may have to cut back their allowance to make this work. It’s hard for a child to understand the need to cut back if every Friday night their parents hire a babysitter and go out.

Control – This can be the tough one because so many things are outside our control. In controlling our budget we first need a clear definition of what our plan is and be willing to stick with it. Opposition can come from a family member who won’t destroy the plastic, unplanned expenses, and bill collectors who call three times a day threatening. If you finally succumb and give them an extra $50 thinking it will shut them up you may only find they start in again the next day. Anyone of these things and many more can blow the plan out of the water. Control is definitely the hardest part of any budgeting plan. This can leave us with feelings of fear, discouragement, failure and inadequacy. Pretty strong words for talking about mere money but if we are honest with ourselves isn’t that why we see so many angry desperate people?

This is where our next management piece comes in: “You can’t manage what you can’t control”. If you are discouraged right now the first step is to be encouraged. Don’t sit around and bemoan your life or circumstances it’s just like taking a shovel and digging yourself in deeper. What inspires you? Is it church, your family, reading the success stories of others, or maybe a quiet walk in the park? Get encouraged.

Then sit down with your plan again and figure out what when wrong and repeat the steps again. Often our biggest mistake is our own optimism. Sounds strange doesn’t it? We under estimate the severity or possible length of the situation and so do not plan for the long haul. A good motto here is “Hope for the best but plan for the worst”. The other bump you might be hitting is not clearly acknowledging the things you cannot control. For an example, if you are unemployed you can control what you do each day but you cannot control when you will be offered a job (unless you decide to offer yourself a job and go into your own business). Almost every time I get frustrated or discouraged it is about the things I cannot control. I need to almost daily say the prayer “God grant me the serenity to accept…”. Repeat along with me if you would like.

Knowing the four management basics and how to respond when things don’t go as you hope is an ongoing process and can be practiced in whatever financial situation you find yourself in.

The most important thing about good management is that it puts you back in charge of your finances. You may have only $400 per month income but through proper management you will be able to make the best decisions for your family. I cannot promise it will be easy or that you may not have to make very difficult choices but I will say that when it is needed you will find the strength, courage, and integrity you never knew you had. Priceless…

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