You may think that money is a strictly grown-up subject, but dealing with your personal finances has a lot in common with raising your children. In the end, we want to help our finances and children to grow from cute, charming, helpless little creatures into self-sufficient, mature and independent beings.
In the beginning, there are babies. It’s easy to imagine human babies, but what are financial babies? Like variations in people, financial babyhood can take many forms. No matter what your current worth or income, you may have financial blind spots or be at risk for serious setbacks that cause you to lose it all. Statistics show that the majority of Americans are not confident about their understanding of their own finances.
At first, babies spend their time learning about their environment. What goes up must come down (sound like the stock market?). Cause and effect. Square pegs and round holes. One step following another. The basics. Mastery. What are the basics for your finances?
The ABCs of Personal Finance
For most people, the most basic part of finances is understanding the flow of money in and out of their lives. This can be much harder to do in the digital age than when cash was king. Money moves through our lives without our ever seeing it. So how do we get that feedback like babies do? Some people need to get back to the “building with blocks” experience and use only cash. This can give you a great sense of the ins and outs of money in your life.
Budgeting Building Blocks
The “building with blocks” idea borrows from a technique your grandmother may have used: envelope budgets. This is a method of budgeting where a certain amount of money is regularly set aside for a category of spending in an envelope marked for that purpose. When it’s time to make a purchase, you check the corresponding envelope to see if there are available funds. If the money is there, then there’s no problem. If not, you have to make a choice. You can delay or skip the purchase, wait until you save additional funds or take money from another envelope. Also, any monies left in envelopes at the end of the month can be rolled over to the next month or shifted to a different envelope. By using this method, you with have a very tactile sense of your personal money flow.
Online Money Management Options
For the computer savvy, there are more high tech options available. Technology traditionalists are probably familiar with any of several desktop personal finance programs that have been around for many years and are feature rich. Investing your time in learning and using the software will reward you with all sorts of great information and feedback. You can review your finances like a pro.
For a “lite” look at your finances, you may want to consider one of the newer online personal finance websites. Many are even free. Review them to see if they offer the information you are looking for. Some focus on budgeting and cashflow while others aggregate your investment information as well. While they may be less powerful than desktop software, you can’t beat the price. Either way you choose to go, you can see how money is flowing into and out of your life!
Using these cash flow tools gives you feedback about your finances in just the way babies get feedback from stacking blocks or playing in the bathtub. You may not find this as fun as blowing bubbles, but gaining mastery of your finances is as wonderful as watching a child’s first step.
DeDe Jones, CPA is a Certified Financial Planner™ professional licensed with a registered investment adviser that provides personal financial advice online for a fee. She enjoys raising her twins, playing indoor soccer and curling up with a good book. Contact DeDe for help on virtually any financial advice need.