Back to BASICs

We can all do better when it comes to living within our means. I read something somewhere that, "70% of Americans live like they are in the top 1%"

That is a bold and un-scientific statement, but it does paint a clear picture. A wild picture supported by a noisy backdrop of ugly economic numbers.

Recently, my wife and I have made some major life changes, resulting in a "focus on what you can control and recognize what you cannot control" kick with our kids. Whatever your circumstances, it’s a great reminder and starting point to make some changes, for all of us right now whether you are in that 70%, or think you are in the other 30.

For us, that focus means taking control and getting back to BASICs. I have worked through these steps for the last year and have cut our family spending by 40%! It has been a positive financial and emotional journey for our family.

Step #1: BASELINE: accurately determine your current economic reality. This is your baseline from which all of your progress will be measured. When you get rolling and implement your plan, you will see significant changes from this starting point and everyone will breath a bit easier...

-a Keep track of everything you spend. Everyone gets a blank tracking sheet, a calendar page will work. Capture every penny spent. Two months is a fair sample size.

-b Calculate Cash Flow. Income(minus)Expenses= Cash Flow. There are a lot of expenses out there that you might not think about. Use the tracking logs from above to make sure you have an accurate picture of what you spend. There are plenty of good, free spreadsheets out there, or you can make your own.

Step #2: ASSESS: Now you’ve established an accurate baseline, you must assess your priorities. Before making sweeping changes, make sure that important areas for your family have been identified and discussed. Communication through any type of change is critical.

Give everyone an assignment. "Tomorrow night after dinner, we will each share a list of 3 things that are truly important to you, or that you love to do, or what you just can’t do without." The idea is to find a conversation starter to help identify what’s most important to your family.

Step #3 STRATEGIZE: Now that you know where you stand and what’s important to your crew, it’s time to brainstorm and research ideas on ways to improve both sides of the cash flow equation. You need a game plan, a strategy. "How can we earn more dollars?", "How can we save more of the dollars we spend?", "What can we do without, what could we use less of, what are our wants vs. the needs?" Consider everything. Have that conversation and then turn the talk into action! It doesn’t have to be perfect and it doesn’t have to be major but it does have to be specific. Write down the improvements (just a few to start, easy ones. Change is hard. You want to have some early wins to get things rolling) that you all agree you can take action on immediately.

Step #4 IMPLEMENT: Right now you are well on your way to making great improvements that will have a profound impact on your family! The communication that has taken place so far is important and very eye opening. It is a wonderful exercise and learning experience for the whole family. But all of that work means very little if the plan is not implemented. You must take action. Action will happen if you plan for it. Don’t assume it will happen. Take the family calendar out and write in what changed behavior will take place and when. I heard it when we started this leg of the journey, "yeah, yeah, we don’t need to do that, we got it, this isn’t rocket science." It’s common knowledge: "If you fail to plan, you plan to fail." Too much work has gone into this BASIC plan, don’t take this critical step for granted!

Step#5 CIRCLE back: Circle back and evaluate how things went. What went well? Celebrate your success (within the budget of course!) You must take the time to recognize your efforts. That is the fuel that will keep things moving forward. What didn’t work this week? Why didn’t it work and what can we plan to do differently next time? This is how you will improve next week and the next week, and the week after that. Eventually this will become a routine, second nature. That’s when you really start to see results that make a difference.

That’s a good, BASIC start for now, to get better today and set your crew up for success tomorrow. There are a million details you could add or consider left out of this BASIC plan but don’t hesitate. Put a BASIC plan together and add your own flavor but take action now. "A good plan acted on today is better than a perfect plan executed next week"


MomInManagement said...

I just started using mint.com and it does most of the tracking for you! Any cash transactions need to be manually entered and a few others, but it's a great tool.

Andrea said...

Planning really is the key to saving. It is so easy to mindlessly spend without thinking about how much is going out.

Daily Saving said...

Thanks Andrea! So true. I've tried to make it part of the routine... this habit has taken me about a dozen time before it really started to stick. Thanks! Brian