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The Cart and the Horse

July 12th, 2010 by Dewayne | Posted in Budgeting, General, Good Advice, I Need a Plan, Uncategorized

There seems to be a flurry of activity these days when it comes to conversations about personal finance management. What applications are best to use, what are the best methods of tracking your finances, who has the slickest tools, account aggregation, etc. Two and a half years after creating BudgetSketch, it amazes me how little this conversation has changed.

When we set out to solve our own personal finance issues, it became painfully clear to me that tracking expenses alone was an almost fruitless exercise. My wife and I tried many personal finance management tools, but they all did the same thing… tracked my spending. I would look back at what I spent last month, then still scratch my head as to why our money was just gone. I could see things like a hundred dollars for the month being spent at the local coffee shop, but nothing about that information told me if I could afford it or not, only that I spent it. It all seemed so reactionary and frankly frustrating.

“Putting the cart before the horse” is a common phrase meaning to reverse the accepted order of things. This statement is also an example of a hysteron proteron in Greek, in grammatical terms, meaning a figure of speech used to describe a thing that should come second, but is put first. We’ve all said, “Put on your shoes and socks” to our kids, but we all know that you must put your socks on first before your shoes.

The same applies to personal finance. We spend so much time focusing on the need for expense tracking (“The Cart”) that we fail to see the Cart is really useless without “The Horse” (a Budget). It began to dawn on me that my plan for how I will spend money is the first thing to establish, then I should track how well I’m doing against this plan.

Expense tracking has it’s place in our arsenal of tools, but only implemented to help validate how well we’re sticking to our Budget plan. So it has to make you wonder why there are so many tools focused solely on expense tracking with a spending alert feature masquerading as a budget. If you’ve reached that conclusion… you’re not alone.

The saying is best said, “Never put the cart before the horse”, so why do we try and manage our financial lives this way? Take hold of your financial future by taking the reins and tell that horse where to go. Establish a solid budget plan and stick to it, and only look back long enough to validate how well you’re moving forward.

It’s time to change the conversation about personal finance and get real about solutions instead of allowing ourselves to be convinced by who has the best pie charts. Personal finance is about a plan, everything else is a support mechanism for that plan.

It’s time to change the accepted order of things… one budget at a time.

Goodbye Wesabe. Good luck HelloWallet.

July 4th, 2010 by Bill | Posted in Budgeting, General

Here in the United States we take our independence seriously. So I took offense to a claim of independence made by HelloWallet in a recent Fast Company article that also mentioned the demise of another competitor, Wesabe and left a comment.

I suppose it’s all about perspective. HelloWallet aims at differentiating itself from its primary competitor Mint, which arguably became a bit less independent when it was acquired by Intuit, more than HelloWallet desires to irk the founders of an upstart like BudgetSketch but be cognizant of the fact that in making their claim, HelloWallet is speaking about their company not you. In contrast BudgetSketch was founded to secure financial independence for its users. Period.

Let’s be frank, most “for profit” personal finance sites are interested in two things, your financial data and the ability to sell access to you to the highest bidder, or in this case often the lowest interest rate bidder. BudgetSketch has always maintained that while the folks at Mint have proven such an approach is very lucrative for site creators and their backers it is less helpful to the site’s users. Again speaking frankly, we hope to stand that model on its head. We aim to make you wildly successful financially while proving that you can make a living helping others first. More on this in a future blog post.

Profit driven personal finance sites focus on tracking your spending because that’s the data they’re most interested in. We believe that this “water over the dam” approach is not only wrong but counterproductive. We believe that the solution to most personal finance problems begins by looking forward, not back, with the creation of a budget. Budget in hand you can then track your performance against the plan by tracking income and expenses. Sites that generate what they call a “budget” from past spending data only ensure the persistence of bad habits.

Ironically, the failure of Wesabe boiled down to finances. BudgetSketch operates by the principals under which it was founded and the counsel it provides to its users, and has been built patiently, via hard work, using commonsense, with an eye on the bottom line. We are beholding to no venture capitalists and no creditors, only ourselves and our users, and we’re very proud of that fact. So goodbye Wesabe. Good luck HelloWallet. As for BudgetSketch and our users, we choose hardwork and commonsense as we work toward our personal independence days.

Rudder: A Cautionary Tale

May 22nd, 2009 by Bill | Posted in General, Good Advice

A recent security issue with the Web-based personal finance management (PFM) application called Rudder has served as a wake-up call to all service providers in the PFM industry and should serve as a cautionary tale for all consumers of these services.

Briefly, it appears that some Rudder users were inadvertently emailed the financial information of other Rudder users without the consent of those other users. Furthermore, it has been reported that links within the unencrypted email messages permitted recipients of the email messages to gain access to the other users Rudder accounts.

Web-based PFM tools are springing up at the rate of about one a week it seems these days. Some of these tools are the product of bootstrapping start-ups with no reputation upon which to base a relationship of trust. Others are well funded with executive management teams and boards of directors that give an air of respectability but given the performance of the financial sector recently, everyone’s judgement is called into question.

What then should a wise consumer base the decision to use such tools upon? We suggest that there are three relatively easily answered questions that should guide you.

What information are you being asked to share?

In the case of Rudder, as with many of the more popular PFM tools, users link their bank statements to their user accounts within the PFM tool. Whether or not the bank account login information is stored within the PFM tool, a significant amount of information is at risk for compromise. Rudder emails detailed financial data to users. Many would consider that practice risky, especially if the email messages are unencrypted.

What risk are you exposed to if that information is compromised?

Once more, in the case of Rudder, detailed bank account information appears to have been compromised yet access to the bank accounts of Rudder users was read only. Aside from potential embarrassment, little if anything of direct financial value was compromised. If the developers of Rudder were capable of releasing code that emailed user data improperly then it is a reasonable concern that they might also be capable of unintentionally saving bank account login information putting it at risk of compromise.

Who might benefit from access to your information?

One primary reason why we created BudgetSketch was because most of the PFM tools we found available on the Web seemed to be more focused on marketing credit cards and loans than on the elimination of debt and growth of personal wealth. BudgetSketch is a tool that we used to gain control of our personal finances that we knew might be of value to others. Thus we decided to offer it to everyone, free of charge from this day forward, with the ambitious aim of helping to reverse the currently bleak economic future by promoting sound personal financial planning.

With simplicity as a primary consideration in its design, BudgetSketch does not suffer from the security vulnerabilities of applications like Rudder. BudgetSketch requires that you enter your planned spending for the coming month but that information never leaves our server, especially not in unencrypted email messages. Since no bank account information is needed to make use of BudgetSketch, it is an unappealing target for hackers seeking access to the financial accounts of others. Finally, at its core, BudgetSketch has always been, and will always remain a tool dedicated primarily to delivering maximum benefit to its users.

Calling All Spreadsheet Budgeters!
Win an iPod Touch!

April 13th, 2009 by Dewayne | Posted in Budgeting, General

Are you managing your personal financial budget using a spreadsheet, but looking for a way to share that budget with your spouse or an accountability partner? Yes, we’re talking to you Dave Ramsey followers!

We invite you to try BudgetSketch®, our free Web-based budgeting application. BudgetSketch® is intended to be a simple, yet effective tool to help you create and maintain a monthly zero balance budget. BudgetSketch® is NOT intended to pay your bills or to track your expenses, however, using BudgetSketch® will allow you to create your personal financial plan in its most elementary form, a budget. Nothing more. Nothing less.

In an effort to make BudgetSketch® the best budgeting tool on the web, we are introducing the BudgetSketch® iPod Touch Giveaway!!

Here’s all you have to do to enter to win a brand new 8GB iPod Touch:

1.) Sign up for an account between April 13th – June 13th.

2.) Set-up 2 months worth of budgets, (April & May) or (May & June).

3.) Submit at least 1 feedback comment to us detailing your thoughts about BudgetSketch® and your ideas for additional features. (Just use our “Contact Us” form while logged into the application.)

Once you have completed the 3 steps above, your email address will be entered into a drawing for a brand new 8GB iPod Touch. The winner will be selected and notified on June 15th, 2009. No purchase necessary.

Our intention is to create the most simple and effective personal budget management tool available for free on the Web. We thank you in advance for helping us refine and improve BudgetSketch®, which will always be free to use for anyone seeking to gain control of their personal finances through sound planning.

Good Luck & Happy Budgeting!

Are you smarter than a 4th grader?

April 10th, 2009 by Dewayne | Posted in Budgeting, General, Good Advice

The National Foundation for Credit Counseling runs a yearly “Be Money Wi$e National Financial Literacy Poster Contest” The contest is designed to get young students thinking about how to manage money effectively and offers them a creative outlet to demonstrate their knowledge. The chosen winners are recognized nationally, and the winners receive US savings bonds.

One of the poster winners for 2009 was Jenna Fink. A fourth grader from Sparks Elementary School in Frisco, Texas.

09elementarywinner

She touches on all aspects of proper personal finance management, and created an ingeniously simple illustration that anyone can understand. Awesome!

Jenna… you’re a very smart young lady, and I’ll bet your parents are pretty smart too!!

If you would like to learn more about this contest, you can visit the NFCC contest website at http://www.moneywisepostercontest.org/

Teach your children in the way they should go

April 7th, 2009 by Dewayne | Posted in Budgeting, General, Good Advice

I’ll have to admit, I really didn’t “get it” about budgeting until a few years ago. Needless to say, I have had my own financial struggles as a result. I really didn’t realize that my spending was controlling my financial future instead of me controlling my financial future by controlling my money.

The unfortunate thing is that it took me 35 years to finally realize I have been managing my money in the wrong way (I use the term managing very loosely). Although I am very grateful to good friends that did “get it”, and were willing to impart their knowledge and experience to get me on the right path, it shouldn’t take each of us our whole lives to figure things out!

The bible says, “Teach your children in the way they should go, and they will never depart from it.” Now I know this pertains to spiritual teachings, but this same truth can be applied to many areas of our children’s lives, and one big area is managing money. If we teach our children good money managing habits, they will be properly equipped when they go off to college and start their own families.

So, here are some things you can do to help your children learn good money managing habits.

Teach your children that earning is fun

There are few things that give me more joy than to buy my children something I know they will really enjoy. Now, my children are young, but I still try to help teach them that you earn “things” by working, or at their age, helping Mommy or being especially good. One recent example was with my 5 year old.

Dad had an important meeting and Mom was unavailable to watch him, so he went with me. I told him, “Son, I need you to be really kind and quiet during Daddy’s meeting”. I also told him he would earn something really cool if he did his part. Well, my meeting went longer than expected (almost 2 hours), but my son was very quiet and content throughout the meeting (did I mention he is 5!). He did a fantastic job! So, after the meeting, we went to one of his favorite stores and I gave him some money to buy some really cool matchbox cars he liked. He was so happy and I told him that he earned those cars all by himself! There is a great sense of inner pride when you work hard and earn a fair wage, and children feel no different. He knew he had done well, and reminded me of that fact for the rest of the day!

If you have teenagers, certainly the incentive to earn a few matchbox cars is not going work! However, the same rules apply. My Dad told me when I turned 16 that if I wanted a car, I had to get a job first. He said I would be responsible for gas, insurance, and maintenance, but I had to prove to him I could afford these responsibilities by gaining employment. So, I went out and got a job at a movie rental store and worked there from 16 to the day I graduated high school. My Dad put up the $900 to buy my first car, but I maintained it all throughout high school. Every time I looked at that car, I had a sense of pride and ownership, and I took care of that car in the same way. It is fun to earn from hard work and personal responsibility!

Teach your children to save

One bit of advice I have received over the years is to make sure you “pay yourself”. Meaning, when you budget your money, pay your essential bills first, then pay yourself, then use the remainder for things you enjoy. We can teach our children to do the same at an early age.

I know when I was a kid, I used to get an allowance, and of course this allowance was directly tied to completing my assigned chores around the house. Even at this age, you can teach your kids good budgeting habits. When they receive their allowance, or if they went out and worked and earned some money, you can take this opportunity to teach them how to “pay themselves” first. Take them down to the local bank and open a savings account and tell them that each time they earn money they have to put the first 25% of what they earned in this new savings account. Then explain to them that this is called “paying yourself”. If they owed you or anyone else money, they should pay that money back first, then pay themselves. Then explain to them the fun part! Now that they have met their obligations and saved for the future, they can now go and have fun with the rest of the money! Even at an early age, this will work to teach your children the proper way to manage their money!

Teach your college age kids how to budget!

Now that your kids have had a good foundation in managing their money, teaching them how to budget should be a snap! If you read my previous blog post on Marketing Debt Creation Tools to Our Children, you will know that when our kids head off to college, they will be bombarded with what I call, “Banks behaving badly”. Many young adults graduating college at the age of 22 already have racked up $5,000 to $15,000 in credit card debt before they even get their first real job.

College students can easily learn how to budget. They have some type of income for living expenses and spending cash (mostly from Mom & Dad), and maybe have some living obligations like rent, food, etc. One thing we like about BudgetSketch® is that you can collaborate with anyone you like. Sign your college student up for an account on BudgetSketch®, then set yourself up (Mom & Dad) as collaborators on their account, and work with them to establish an intentional budget plan for managing their money. It will be clear to them, and to you, if they are following their budget plan or not. So the next time you get a phone call with “Daddy, I need more money”, both of you will know if they really do need more money or if they are misappropriating money to their “pizza” budget!

These lessons you teach your children will carry them throughout their adult lives. Teaching them to work hard and to be responsible with what they earn are some of the best lessons we can leave with our children. Mistakes are a necessary part of life, and sometimes the only way we learn, but with the proper foundation, fixing mistakes can be much easier and sometimes much less painful.

Teaching our children also has an intended side effect… It is not unusual for the “teacher” to learn more than the “student”

Feel free to share your success stories… I would love to hear them!!

Honorable Mention

April 1st, 2009 by Dewayne | Posted in Budgeting, General

Michelle Loretta, owner of mmm… paper, runs a great blog site at Sage Wedding Pros. Her blog site is a resource for wedding professionals who want to have smarter businesses. She also has an affinity for personal and business financial planning.

She was kind enough to give BudgetSketch® a look and posted a very nice endorsement on her blog while writing about proper budgeting the easy way.

Read her excellent post here: Easy Peasy Budgeting

Thanks Michelle for the honorable mention!!

Ask not for whom the bell tolls!

March 28th, 2009 by Bill | Posted in Budgeting, General, Good Advice, I Need a Plan

It was the best of times. It was the worst of times. OK, so I’m mixing my metaphors or actually literary works in this case but the bug that’s been going around finally got around to me. “The flu?” you ask. If only… Nope. I’ve got a full blown case of pink slip-itis!

No, I didn’t fire myself as the president of Finagilous. As perhaps you already know, Finagilous was formed to create BudgetSketch®. Along with a small team I have been pouring money and sweat into the effort on as near a full-time basis as I could manage over the past year. I was, until recently, financing my business development passion via a “steady” day job.

“So what’s all this best and worst of times non-sense?” you ask. Well, it couldn’t have happened at a better or worse time. Better because my position was eliminated a month away from the formal launch of BudgetSketch® leaving me plenty of excuses not to be pounding the pavement looking for work so I can work overtime on BudgetSketch®. “And the worst of times?” you press. Have you picked up a newspaper lately?! There hasn’t been a worse time to be unemployed in 75 years.

“And this pertains to budgeting how?” you follow. Well, first, I’m glad my wife and I had begun getting our financial house in order a couple years ago or my job loss might have put us over the edge. Next, we know exactly how much cash we need to get by each month because we’ve got a budget. Finally, when all else fails, we’ve got an emergency fund. All the product of having a sound financial plan, AKA “a budget”.

Perhaps the biggest lesson is that you never know what lies around the next bend in the road, especially in trying times like these. So it is wisest to be prepared. Not having a plan is not being prepared. Are you prepared? I hope you don’t have to find out the way I found out but life’s little twists and turns have a way of highlighting your preparedness, or unpreparedness!

“Ask not for whom the bell tolls?” It tolled for me!

Budgeting versus Expense Tracking

February 15th, 2009 by Bill | Posted in Budgeting, General

No matter what your passion, if your aim is to help others who are struggling with the same issues you are, one of your toughest challenges will be to convince others to abandon the fruitless practices that you had difficulty abandoning yourself.

For decades, every attempt I made to gain control of my finances started out by tracking my past expenses. Therefore, I was not surprised to discover the Where’s My Money Going? Month series of blog posts on the Finance for a Freelance Life blog which encourages its readers to join in the expense tracking fun.

First, please do not interpret this as an attack on the Finance for a Freelance Life (FfaFL) blog. You will find much helpful information there and I encourage you to check it out. For those of you familiar with Dave Ramsey, I love his concept of free spirits and nerds. Now, this may shock some of you, but bloggers tend to be a pretty nerdy bunch which is probably the genesis of FfaFL’s rather nerdy tendencies of expense tracking. Hey, you don’t think any of us free spirits could even conceive of such a practice, do you?!

The habit that I would like to break among those struggling to gain control of their finances is this notion that expense tracking is somehow linked to budgeting. After decades of blind obedience to that school of thought it occurred to me that trying to control where my money was going by tracking expenses is about as effective as trying to lead a horse by its tail. What I finally learned was that the only thing knowing where my money was going did for me was confirm something that should already have been painfully obvious to me, I’m lousy at managing money!

I knew there had to be a better way and I figured it would likely start with walking around to the other end of the horse and picking up the reins. Why not do the budget first?! Yes, I’m serious. In decades of financial futility it had never occurred to me that the best place to start was with a detailed, financial plan, AKA a budget.

Why does budgeting first work? Because it puts you in control. You know your income. You know your obligations. You decide who gets paid how much and when. Then tracking expenses becomes trivial because you spend what you planned to spend IF you’re disciplined. Tell your money where to go and you’ll never wonder again where it went.

As if the Where’s My Money Going? Month series wasn’t a big enough set-up, this month’s posts include some very insightful reviews of the current generation of expense tracking apps. I’ve tried most of the apps covered in the review, and many more that were not. The bottom line is though that every attempt I made to gain control of my finances by tracking expenses failed no matter how slick the tool was that I was using to track them.

Even though many of these apps has a “budgeting” component, no two seem to share the same concept of what a budget is and most of them should be renamed “spending goal” or “spending target” components.

That is why Dewayne and I created BudgetSketch® to be a laser focused budget creation tool. We built it debt free, just like we hope to be one day, with no fluff, no ads, and no cost. If you’re ready to take control of your financial future, if you’re fed up with wondering where your money is going, AND TIRED OF TRACKING EXPENSES, why not give BudgetSketch® a try?

Marketing Debt Creation Tools to Our Children

February 12th, 2009 by Dewayne | Posted in Consumerism, General

Many Americans are waking up to the fact that they have overspent, and that debt is breaking our collective backs. I spoke to a couple yesterday, who in recent years, had enjoyed a lifestyle well beyond her means. Today, they have a mountain of consumer debt as a result of living a lifestyle of “Yeah, why not get it, we have the money”, and are now faced with some serious realities. Their home is worth only half what they paid for it 5 years ago, making their mortgage balances exceed 100% LTV. They have in excess of $50,000 in credit card debt, and are driving new cars to work that were purchased within the last 12-24 months. They are beginning to see the fallacies in the self-convincing rationalization of “I like nice stuff”. They told me if either of them lose any of their monthly income, they will begin missing payments. This is a story that is playing itself out over and over across our great country. Luckily for this couple, they’re starting to see it and are beginning a plan to change course.

I guess we could spend time looking for a place to lay blame. Yet, while we may be correct in identifying some of the cultural programming that has led us all down this path, we must recognize that we as individuals are ultimately responsible for our respective positions, and with that, ultimately responsible for finding our way out. For some, that “way out” may take several years of hard work. Getting out of debt and changing behavior doesn’t happen overnight.

Congratulations if you have recognized the pitfalls of the past. I am right there with you. We have to bring back the culture of personal responsibility and sound planning. We have to be determined to break our habits of “I like nice things” consumerism, and begin living well within our means. Personal savings is at an all time low, that’s a great place to start effecting some real change!

As we each develop a plan to get ourselves back on track, let me encourage you to pay serious attention to your children. The selling of unsecured credit doesn’t stop with you. Many Banks and Universities have joined forces to entrap our children in just the same way we have fallen prey. As an example, Michigan State University gets $1.2 million a year (guaranteed $8.4 million over seven years), according to its agreement with Bank of America, to let them market and sell debt creation tools to our kids. The contract calls for a $1 royalty to the university for every new card account that remains open for at least 90 days, $3 for every card whose holder pays an annual fee, and a payment of a half percent of the amount of all retail purchases using the cards.

Yeah… oh my goodness is right!

studentcredit

Read the NY Times Article here

Keep in mind this is just one example. All across the country, lenders are lining up at Admission Offices, ready to sell our kids credit cards, knowing this naive demographic is the easiest to sell. To make matters worse, Colleges and Universities are developing revenue streams by allowing lenders to do it. Should you be upset and lash out at the banks and educational institutions? Why? In a free society, if someone is willing to buy, someone will be ready to sell.

The better course is to teach your children the pitfalls you have experienced. Give them the fighting chance to deny the path of debt creation and to avoid the traps of consumerism laid out before them. Knowledge is power, and I urge you to take the time to understand how to take control of your own situation and then pass those lessons on to your children. Their futures depend on it.

Personal Budgeting