Having been a ‘budget-guy’ my entire professional life, I have promoted the concept of ‘Just-Enough Budgeting‘. Use only enough planning to achieve the maximum value from the planning [1]. Developing financial plans are expensive, challenging to maintain and may run counter to the well-being of an organization [2].

Pity the Family

Pity then the poor family being told to develop a household budget. While an organization likely has an accountant lurking about, a family may not have skills or seemingly the time.

Families are both simpler and more challenging than organizations. A family budget has fewer transactions to consider, fewer variables and fewer people involved. Perversely this also makes household budgeting more challenging. Fewer transactions may lead to complacency; ‘we know where our money is going’ but not where we spent it. The variables may be fewer but they may also be more intransigent; one family member having a gambling or drinking addiction. Finally, fewer people means that the one person doing the budget may ask, “why am I bothering?“.

Taking on a net-new task, budgeting, seems daunting. But it gets even worse.

Go Forth and Budget Sayeth Financial Literacy

Most financial literacy programs place budgeting as a corner stone in helping a family regain financial independence. Unfortunately, after laying this rock, the program usually glides off to other topics leading the family to wonder ‘…exactly how do I budget?’.

There are no shortage of techniques recommended. One well respected program I am familiar with recommends the following budget methods:

• Pay-cheque Planner: A cash flow statement comparing when money is coming in to when it is being spent [3].
• Calendar Method. Is a variation on the Pay-cheque planner. Rather than using a grid, mark the payment due dates on a calendar. Transcribe the payments from one month to a new month.
• Envelope or Jar Method. Physically place cash in an envelope and when it comes time to pay, remove the required money from the envelope and make the payment.
• Notebook, Accounting or Phone App Method. Use computer application (including a spreadsheet) to both track spending and budget.

Pay-cheque Planner and Calendar Methods. The first two methods are very reasonable ways to start budgeting. But, in our frenzied world, transcribing payments from one month to another in a calendar or even a spreadsheet is a good way to lose enthusiasm. These methods are labour intensive. Physical note books do not support analytics, e.g. are we spending more or less on food over the past year. In addition, the family needs to be on top of irregular expenses such as annual school fees

The Envelope Method involves putting the cash you have for the month in jars or envelopes for each type of expense you have (rent, food, utilities, etc.). Nothing left in the jar, you spent this budget category (or someone found your stash of envelopes and made off with the grocery money!). This method is not recommended as it is dependent upon receiving and then paying in cash – how 1960’s. Also, having a month’s worth of cash in house is not a good idea [4].

Physical Note Books work fine… assuming you don’t want to do any subsequent analysis on your spending. They also can be lost or enthusiasm wanes along with developing writes cramp.

Applications can ride to the rescue, there are certainly enough of them – thus the first problem, which one do you choose? After you pick it, will the application be around after you have invested the time to learn it? How long will the free version you are using last? As for the paid version, now that the company has your information, will they slowly increase the price knowing you are locked into their product?

These applications typically integrate with one’s bank and credit cards. Their costs range from free to a bit pricey. Remember an American based application may not play nice with Canadian banks so be sure the application is supported in your jurisdiction.

The good news is that these applications eliminate re-entering information and can produce pretty-graphics. The bad news is that they don’t necessarily teach the user the discipline or truly motivate good financial literacy. The worst news is that your juicy financial information is being held by a third-party.

There is the problem of information-security. Integration into your bank accounts and likely storing very personal information make these very juicy targets for hackers.. This leads to the final problem with the applications, their longevity. If application ‘X’ ceases operations tomorrow – are you ready to start from scratch? [8]

Go Forth and Budget – But One Step at a Time

These are the challenges associated with asking a family to budget in a financial literacy program. They are not insurmountable and can be tackled by taking a systematic approach to introducing budgeting. This approach recognizes that there is both a motivation challenge as well as a process or method challenge. A challenge resolved through the concept of Budgeting 2×2 – Family Friendly Edition.

Notes and References

1. Eagle eye economists will recognize this as the concept of diminishing returns: Diminishing returns – Wikipedia.
2. If you want to read more on my thoughts on budgeting, poke around: Budgeting | Organizational Biology & Other Thoughts (myorgbio.org).
3. There are number of resources that describe how this technique works, the following are from a simple internet-search.
   1. Paycheque Planner/Money Tracker Worksheet, from Alberta’s Money Mentors.
   2. How to Live on a Budget with a Paycheque Planner, a good overview of the process from MyMoneyCoach.
   3. Paycheck Budgeting, you can download a template from this website.
4. Good reasons not to have this much cash laying about includes the obvious threats of theft. If one of the reasons your family is having financial difficulties is because someone has a compulsive personality (gambles, drinks, drugs); having thick envelopes of cash is a temptation beyond pale. The final good reason is that cash sitting in an envelope is doing no one any good. Interest rates may be nominal but having some surplus cash that prevents an overdraft charge is a good investment.