In the lexicon of personal income, 'budget' isn't a dirty word

MENDING YOUR SPENDING

March 19, 1993|By Patrick A. McGuire | Patrick A. McGuire,Staff Writer

Let me ask you something, just between us: Do you have any money? Extra money, you know, money socked away for the college bills, the retirement condo, the trip to Disney World. So who does? The thing is, with all this presidential talk about increasing our contribution, paying off the deficit, well, I'm a little bit short this week. I was hoping to get one of those wide screen TVs to take my mind off it. What the hey, it's on sale and I can use the new VISA that came in today's mail. Besides, it's my patriotic duty, so to speak: It'll help me see the big picture.

Uh, oh. The fuel gauge is reading low on reality again. You've got to check that stuff all the time. But according to just about any financial adviser you talk to, not enough of us are realistic when it comes to our money. We Americans spend too much, we don't save anything, and two out of every five of us are worried about money, say the gurus of the bottom line. And now, as the president issues his wake-up call to tighten the belt for Old Glory, it looks like some of us are going to be forced to get up on the wrong side of the bed.

There are dozens of ways to explain why we aren't good with money. In recent interviews, for instance, a New York psychologist says it may be because we were toilet trained the wrong way; a Baltimore credit counselor says it could be because we don't brown bag it enough; a Bethesda CPA says it's because we have no idea where our money goes. And a jaded Wall Street business editor thinks all of that is too polite and says it's really because we are lazy.

But they all agree on two things: First, there is still hope for just about everybody. Second, just about everybody ignores the common sense idea of setting up a personal budget, the surest way to regain control over your money.

"One of the great lies of all time is 'of course I have a budget,' " says Paul R. Brown, co-author of "Grow Rich Slowly, the Merrill Lynch Guide to Retirement Planning." "But of course they don't have a budget. Why? Because it's hard and it's so much easier to pay 20 percent more for everything on a credit card. We are remarkably awful at this."

And yet, says Arlene Modica Matthews, a New Jersey psychotherapist and author of "Your Money Yourself," some of our failure is understandable. "Modern money life is so damn convoluted," she says. "You practically have to be a trained CPA to keep up with your financial life. Even people who do make an effort and are psychologically balanced regarding money are prone to throw up their hands and say this is ridiculous."

Ms. Matthews, in fact, goes into great detail in her latest book linking good money management and psychological health to explaining how the wrong disciplinary approach taken by parents -- especially in the toilet training age -- can have a damaging effect on their ability to handle money later on.

"Money is like a kind of Rorschach test," she says. "Anything unresolved from childhood gets projected onto it. People with a lack of nurturing in childhood have self esteem problems and fill up the emptiness with alcohol, drugs and very often money. There was a 'getting and spending' frenzy in the '80s indicative of a generation of people who did not quite feel good about themselves."

Whatever the reasons, says John Gengler, education director of Consumer Credit Counseling Service of Maryland & Delaware, one thing is clear: "Most people do not know where their money goes."

Only 2 percent of the 5,100 debt-burdened clients who sought the free credit counseling provided by CCCS last year, he says, had a budget. Why? "People like to fantasize that they have enough money to do whatever they want to do," he says. "They think filling out a budget will restrict their freedom to spend as they want. Actually, the opposite is true."

A budget makes one keenly aware of money management, he says. "If you see you are eating at a drive-in restaurant each day and spending $4, multiply that times 5 days and its $20 a week and $80 a month, $960 a year. Now, you ask yourself, could you do something else with that money?"

That process of analyzing spending habits is where most experts say you should begin in drafting your budget plan. "You analyze past information to find out 'Where have you been?' 'Where do you want to be?' and 'How did the budget do?' " says Karen Barnhouse, a CPA in charge of personal financial planning at the Keller, Bruner accounting firm in Bethesda and chair of the Maryland Association of CPAs. "A lot of people don't do any of that. Some answer just the first question, fewer answer the second, and hardly anybody goes back and analyzes it. Yet that's the whole purpose of a budget."

Other than ignoring the budget once it's been set up, the most common mistake made by most home budgeters, says Mr. Brown, is paying themselves last. "People will say, 'I'm gonna budget, but I will pay all my bills first and if there is anything left, I will, maybe, sort of, kind of, save it."

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