Last year’s annual gift guide not only brought new products to my attention but a bunch of experts who have written books on money related topics. Last week you got to hear BJ Gallagher’s tips and this week it’s Ken Robinson who is a financial adviser and author of Don’t Make a Budget.
Budget Smart Girl (BSG)-Why do most of us have difficulty sticking with a budget?
Ken Robinson (KR)-When we make a traditional budget, we list all our expenses, and how much we spend on each category. Since most people who make budgets are trying to save money, the question that naturally follows is, “Where can I cut back?” This is just another way of asking, “What can I give up? What can I do without?” It creates feelings of deprivation and want, and since most of us feel we could use some additional spending money to begin with, our emotions are constantly fighting our savings goal.
BSG-What are some of the pitfalls of attempting to stay on a budget?
KR-Once you’ve got spending limits set up, life takes over. You may need to spend something extra on clothing this month, or you may not have budgeted enough for car repair. So budgets involve constantly robbing Peter to pay Paul. The “limits” you’ve set for spending in each category start to feel pretty fictitious when you have to make constant adjustments month after month. And then it’s easy to say, “Well, I know I’m spending more eating out this month than we budgeted, but I’ll find some place to make it up.” And some months, that’s not possible.
BSG-I liked the acknowledgement in your book about your father teaching you that we’re not what we buy. It made me smile because my own dad told me the same thing. We’re both lucky to have these great role models, but what about people who’ve grown up with parents obsessed with ‘keeping up with the joneses’. Can you change your ways and adopt your own philosophy about finances and money?
KR-Yes, but it’s tough. Our upbringing is responsible for a lot about how we feel about money. It helps to expand your awareness and realize that there is another way to be happy with your spending, by spending less. If you see lots of other people doing what you wish you could do, they can become your new role models. Since it’s so tough to change habits, we often need some help. I once met a guy who had long wanted to change his name, but knew everyone would just keep calling him Fred. He waited until he’d had weight-loss surgery before asking people to start calling him George, and it worked. When they saw a different body, his friends were willing to call him by a different name. So our minds might find it easier to adopt different spending habits if you change how you interact with money and go about spending. If your parents kept up with the Joneses with the help of credit cards, maybe you need to use cash, checks, and on-line bill-pay, so you experience something different when you spend. Or switch to a new computer program to balance your checkbook. Anything to mark the day when the old you stopped spending and the new you took over.
BSG-I know your book tells us we shouldn’t stick to a budget but what are some easy tips you can offer readers for keeping their finances under control?
KR-First, let’s be clear about what I mean when I say you shouldn’t make a budget. I’m not saying you should spend whatever you want. I’m saying that budgets are usually a tough way for most people to successfully save money. I do want you to save money, and the best way to do that is to pay yourself first. Just make a decision about how much you’re going to save. Then plug the possible leaks in your spending—most importantly, we should set aside our credit cards, because most of us spend more with credit cards than we do with cash, even when we’re trying not to. Try spending with cash, checks, and on-line bill pay for a month or two. You’ll probably find that it’s harder to spend $30 in cash than to spend $50 on a credit card. This makes us think more consciously about our spending, so we’re less prone to impulse buys.
BSG-Do you think there’s a silver lining to the current economic downturn?
KR-Well, the national savings rate has risen at a dramatic rate. It’s still not as high as it should be, but it’s higher than it’s been for years. I think this is our generation’s wake-up call, the way the Great Depression was for our grandparents and great-grandparents. We’re still not saving as much as we should, or as much as people in many other industrialized countries do. But the financial crisis that exploded on all of us in 2008 has people realizing that some downturns are big, and may last a long time. So they’re getting better prepared for it.
BSG-As well as offering seminars and writing books, you’re also a financial advisor?
KR-Yes, I call myself a holistic financial advisor.
BSG-First of all, what are the most common problems clients are dealing with right now?
KR-Most of the distress is about limited cash flow, and lost investment value. I hear lots of people complaining that their CDs aren’t earning anything right now. But I tell them that’s OK—their CDs are meant to be safe, not to grow. The most common question I’m getting from new clients is, “How do we keep our money safe and get it to grow?” The answer is that you can’t. Any one dollar can be safe, in an FDIC-insured CD, for example. And any one dollar can be poised for growth by, say, investing it in a mutual fund that owns stocks. But no one dollar can do both at the same time. There are financial products that claim to give growth-and-safety-in-one, but they’re very expensive, and I don’t usually recommend them.
BSG-And what’s your advice about how to weather this economic storm?
KR-First, don’t panic. If things get better, the panic won’t be necessary, and if they get worse, it won’t help. Secondly, realize that most of us will still have what we truly need: food, clothing, shelter, and health care (even if it’s at a free clinic or the emergency room). Thirdly, if you still have a job—and the huge majority of us do—it’s time to make yourself indispensible at work. Be the person who’s always willing to get in a little early, and leave a little late, to learn something new so you can be more valuable to your employer. What if your boss doesn’t know what you really do? Write up a weekly summary of how you spent your time at work, and give it to your boss to demonstrate your value.
BSG- My site is all about saving money while living the good life. Some people don’t believe the two can coexist. Any tips for keeping a positive outlook, even when you have to watch your pennies?
KR-Part of the good life is about knowing you have, and will have, what you need. But the line between what we need and what we want gets pretty blurry because we’re wired up to compare ourselves to others. And who do we see that we’re comparing ourselves to? Our culture shows us the rich and famous on television, and people who are trying to win a million dollars on a quiz show or by performing some stunt like bouncing a ball off their heads 200 times in a row. Closer to home, we see others coming to work in nicer cars, with nicer clothes, and it’s natural to be envious. It depends on who we compare ourselves to. There’s an old saying, “In the land of the blind, the one-eyed man is king.” It explains why we were so psyched about the Palm III we got years ago, but why we can’t stand the thing when we put it next to a smart phone. So who should we be comparing ourselves to? The “fortunate” few who live their lives in the lightning flash of the paparazzi? Or the immense majority of human beings that make up, well, the rest of us? There are still millions of people on earth who’ve never used a telephone. There are more people in slavery today than ever before in human history. We can see hopeless poverty for those who don’t have enough money even for food and shelter even if we look just a few miles from our homes, let alone elsewhere around the world. We’re living with greater luxury, comfort, and convenience than the majority of kings and queens that have ever lived, and more than vast numbers of people who are living now. Maybe most importantly, we should remember that who we’ll be tomorrow doesn’t have to be defined by what someone said we were yesterday. Author and speaker Les Brown describes an influential teacher in his life who helped him understand that someone else’s opinion of you doesn’t have to become your reality. What’s the point? When we feel deprived, we’re often comparing ourselves to the wrong people. Looking at the rich is likely to make us jealous. Looking at those worse off than ourselves can help us see how lucky (some would say blessed) we really are. If we have enough food, clothing, and shelter, if we have access to health care, if we have more than just a couple changes of clothes, we’ve got enough to make most of our ancestors very jealous. For most of the 200,000 years human beings have existed, we’ve had to worry about dying from lack of food. Now we Americans often have to worry about dying from excess food. This is the right kind of problem to have. When we don’t have to worry about whether our children or our neighbors’ children are going to die of starvation today, that’s a good day. I know not everyone agrees with me. But when you think about it, how can you feel sorry for someone who complains that they don’t have any money just after they used a credit card to buy a $1,000 wide-screen TV?
BSG-Any books, besides your own, or any Web sites you can recommend we check out?
KR-A great book on the fundamentals of money is The Wealthy Barber by David Chilton. Also, see The Richest Man in Babylon by George S. Clason. These are two of the more interesting books on finance because they’re written like stories, not like how-to books. Two good books by colleagues of mine: Jill Gianola of Columbus, Ohio wrote The Young Couple’s Guide to Growing Rich Together. And Michgan’s Bert Whitehead is the author of Why Smart People Do Stupid Things with Money. For websites, see www.AmericaSaves.org a national effort to help people save money and build wealth. People interested in investor education can check out www.Morningstar.com.And for some short video on how to save money, and on the financial crisis, see the video section of my website www.FinancialSelfConfidence.com.
BSG-Any tips or anything else you’d like to share?
KR-The most important thing you can do is to save money out of every paycheck. Start small, right now, with $5. Or even $1. Don’t be a victim of commercialism. Save just a little cash, and build up your savings slowly over time. Keeping some of what you earn is the key to so much about financial security. This will help you build up some real savings. And that’s money smart.
