On the Money Trail
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Living Within a Family Budget
by Al Jacobs, author of Nobody's Fool
September 2007

If you visit google.com, the Internet’s most prominent search engine, and enter the words “Family Budget,” you’ll be referred to 93,800,000 websites.  As you see, there’s a plethora of information on budgets.  Visit some of the sites as I did and you can learn how to create them, revise them, refine them, interpret them, rationalize them, and conform to them.  Nonetheless, the number of American families whose finances are out of control is staggering.

The difficulty is not a shortage of budget advice.  On the contrary, there is more available guidance on the subject than most people can begin to digest.  And therein lies the problem, for the sheer volume of recommendations is like dining in a restaurant with 150 entrées on the menu: You cannot do justice the options.

With that said, I’d like to offer six guidelines that, if followed, will enable anyone to live within a budget.  Short of personal catastrophe, simply conform to these rules and financial problems will tend to evaporate.

1.  Your credit card balances are paid in full before the end of each billing period.  Using these pieces of plastic is not a problem, but a payment schedule that requires payment of interest is the road to ruin.  The issuing companies hope that each cardholder will remit the minimum monthly servicing amount, resulting in ever-increasing unpaid balances.  They regularly increase card limits to encourage abuse, meaning ever more interest and penalties.  If you plan to live within your budget, you’ll need to disappoint them.  Admittedly, the temptations can be insidious.  If for any reason you cannot follow this rule, then cut up the cards with a scissors and fashion your life accordingly.

2.  You purchase no personal or household items on time.  A couple I’ve known for many years are among my closest friends.  During the first few years I knew them, their living room remained completely vacant.  The explanation seemed simple.  They lacked the money to furnish it as they wanted, refused to go into hock for something they considered nonessential, so waited until they could afford to do justice to the room.  Today they are wealthy, with every luxury including a beautifully furnished home.  It’s my belief that they went about things in exactly the correct manner.  The principle is basic: Acquisition of items that are not vital implements of living is deferred until the spare cash is available.  The key is distinguishing between what is really important and what is not.

3.  You avoid vacations that you cannot pay for with cash on hand.  A month’s excursion through the Melanesian Islands of the South Pacific will be an event you’ll remember for a lifetime.  If you can’t actually afford it, its cost may also be something you’ll recollect for a lifetime.  Vacations are meant to be enjoyed, and returning home with a billfold intact is an important part of that enjoyment.  As an alternative, a weekend in the Adirondacks or Pismo Beach may prove to be a far more rewarding experience.  Before you make any reservations, tally your cash on hand.  Your budget will appreciate the consideration.

4.  You do not gamble.  Every time an Indian casino opens its doors, it seems to enjoy instantaneous success.  You might think there’s a limit on how many dollars are available for disposal into this bottomless pit, but perhaps there is none.  In any event, you will not be a participant in any of this nonsense.  You may feel free to visit the racetracks and gambling parlors, perhaps taking advantage of any economy-priced buffets they offer, but you don’t give these sharks any of your money.  As a final thought, add state-sponsored lotteries to your list of no-nos.

5.  Your vehicle is owned without borrowing of any sort.  With the exception of hearth and home, the motor vehicle constitutes the typical American’s single most important fixation.  No other product is more forcefully marketed, and far too many people succumb to its allure, forfeiting a substantial portion of disposable income.  I’ll put it bluntly: No one should drive a vehicle that is financed or leased.  Acquire your transportation 100% cash on the barrelhead, even if it means you drive a 1984 Toyota Corolla.  At a later date, when your fortune is deservedly secure, you may feel free to sport a brand new Rolls Royce—but again, devoid of any financing.

6.  You do not purchase things you don’t really want.  Marketing as we know it developed during the decade following the First World War, known as the Roaring Twenties.  Since then marketers have perfected their ability to foist off unneeded junk on a gullible public.  The debut on June 29, 2007, of Apple’s IPhone is a splendid example of how a market is created.  As a device that incorporates a camera phone and multimedia player together with e-mail, text messaging, web browsing, and voice mail, it contains all the elements to which hyperbole can be exploited.  How else can you explain why thousands of prospective customers lined up outside stores for several days, to be among the first to purchase this somewhat versatile toy at a price up to $599?  Before you buy something, give serious thought as to whether you really need it or want it.  Don’t let sales pressures dictate your decisions.

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Al Jacobs has been an entrepreneur for forty years. His business experience ranges from property management and securities investment to appraisal, civil engineering, and the operation of a private trust company. In his book, Nobody's Fool - A Skeptic's Guide to Prosperity, Al presents his Ten Ground Rules for Success for achieving wealth and a prosperous life by outlining a philosophy for spending, borrowing, making sound investments, and how to avoid being victimized by America's many intimidating institutions.