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Reasons To Budget Your Money

06.27.2011 by Mike Young //

You’ve heard all the hype. In fact, you may even be tired of all the hype. “You need to do a budget!” How many times have you heard that? With every (well, almost every) financial expert on the planet saying you should do a budget, why are so many still not? Maybe you’ve just never been given a persuasive argument. Allow me to attempt to convince you.

1) It acts as a blueprint.

Imagine the situation. You and your spouse decide that it’s time to build a house. You don’t really worry how much it’s going to cost and your builder tells you he sort of has an idea in his head what it will look like. Can you imagine the disaster this is going to turn into? What if the house ends up costing $700,000 and you can only afford a $200,000 house? What if the builder puts things in the wrong location and you end up hating everything about it? Not to mention how much time and money will be wasted by not having a plan. No one in their right mind would do that. The problem is most people do this with the monthly budget. Just think, if you make the household average income of around $45,000 per year, you will have 1.8 million dollars pass through your hands from age 25-65. That’s right: 1.8 million dollars! Having a budget will help you get the most out of all of that money. It’s like having a blueprint for your money. Often, not having that blueprint can turn into a financial disaster!

2) It forces communication in your marriage.

When you do a budget, it forces husbands and wives to spend time talking to each other. The only way for a budget to truly work long term is for both spouses to be on the same page. This means that they must share their hopes, dreams, and goals with each other. For example, your wife may say that she wants to put aside money in savings because she wants to take the kids to Disney World in two years. Your husband may say that it is really important to him to put a certain percentage into retirement because he would love to retire at age 55. It’s amazing what you can learn about your spouse simply by doing a budget.

3) Reduces stress.

Stress and worry are often born from the unknown. When you really don’t know if you have enough money to buy something you need, it causes stress. If you don’t really know where all of the money you make seems to disappear to, it causes stress. If you really don’t know how you are going to make it if your spouse loses their job, it causes stress. High levels of stress in marriage is a recipe for disaster. Money fights are often cited as the number one cause of divorce. If couples can get this part of their marriage straight, it will provide a huge step towards a long, happy marriage. The most important ingredient for a couple to reduce stress in finances is to get on a budget. A budget will tell you if you have enough money to buy something. It will take you from wondering where your money is going to you being in control of where it is spent (or saved).

I would love to hear your feedback. There are, perhaps, hundreds of good reasons to do a budget. Let us know what your thoughts are. Also, maybe there are good reasons not to do a budget, I would love to hear those as well.

Categories // Money Management Tags // money, Money Management, relationships, stress

Business Debt in a Sole Proprietorship

06.04.2010 by Robert Espe //

Have a question of your own?  Ask DFA writers for free!  🙂

Business debt mixed with our personal finances

DFA Reader Micki asked:

How should we begin to address this financial debt? How do we untangle our personal/business debt and does it even matter since our business is a sole proprietorship? (I have worked outside the business to earn extra money, but my absence cripples the business even more.)

Here is an explanation of their detailed situation:

I have been married for 20 years and have 3 teenage children. My husband, Ron and I own a small wholesale business and have done so for about 15 years. My husband initially started the business, and I took care of bookkeeping. As Ron discussed the venture with his father, Bill, he was encouraged to allow Bill to “help” him; So, because the two had a strong relationship, Ron agreed. Bill took over all finances while Ron was responsible for all sales and customer/vendor relationships and activities. I had entered all invoices and bills into the computer. Bill had never used a computer and refused to do so, therefore, all financial records were kept in his home and all bills and payments sent there as well. My mother-in-law entered all receipts, bills, and taxes. Any time questions arose about the finances, we were assured things were handled and that was Bill’s job. We eventually conceded control. We knew the sales numbers and monthly expenditures and felt confident in our business stability. The business grew quickly and was very profitable. At this point, Bill encouraged Ron to take on a partner who agreed to invest capital in return for a percentage of profits. Trusting his father’s advice, Ron agreed. Terms were agreed upon including a set draw for Bill and commissions for Ron. We spent months developing relationships with vendors that resulted in a preliminary agreement for importation and exclusive rights to inventory. After a short time, Bill realized that Ron’s income was increasing and became dissatisfied with the plan, so, instead of renegotiating the agreement, Bill began paying himself bonuses and selling merchandise to his “friends” under the table and pocketing the money. Our business began losing inventory by the thousands each quarter. The financial partner discovered the inconsistencies and insisted on immediate full return of his investment or face legal action. We paid this from our personal accounts, since Bill insisted there was no other way. Then Ron entered the office one afternoon to hear his father berating our importer for his lack of English skills and culture. He insulted the vendor’s daughter to whom we were personally close and whose wedding my husband had attended and explained that our company had no need of their involvement. The relationship was irreparably severed. Gradually, Ron’s time at the office was increasingly spent arriving late, taking long lunches, napping at his desk, then leaving early. Soon thereafter, I was involved in a severe automobile accident and was unable to work for a couple of months. When I returned, I found things even more unsettling. I overheard my father-in-law on the phone discussing business credit card payments to our vendors, and when I inquired as to the details, I was told it was not my business. Bill was handling the finances. This was the “final straw”. After many years of his promises to retire and leave the company to us, he again gave a date of his departure, and, on that day, we held him to it. He was enraged. He threatened to bankrupt us and said personal things I never imagined a father could say to his son. Upon his leaving he brought bills that we were now responsible for assuring us he would bankrupt our business if we held him responsible for any debt. We were hundreds of thousands in credit card debt. He had apparently forged Ron’s name on some documentation and, on others, had simply claimed full decision-making ability. Ron refused to hold Bill legally responsible or to claim bankruptcy on moral grounds, and we have since been tortured month after month with the magnitude of the debt with which we have been saddled. We continue to pay the bills on time, even those that are in Bill’s name, and his credit has been bolstered as a result. We struggle daily to “rob Peter to pay Paul”. The situation has, over three years time, broken us and nearly our marriage. Initially we were able to begin recovery and advanced repayment of the debts. Then the economy failed. Our business was in the direct line of losses, and customer bankruptcies hit us hard. I am responsible for all finances now, and it is overwhelming. Ron cannot reason with the situation and refuses to talk it through. He did make the decision to use all our available personal credit to shore up the business. We had previously made the decision not to carry any revolving debt. He has cut off all friendships and relationships and looks to me to be his strength. I am at the end. We take full responsibility for our failure to adamantly address the financial questions with his father. We are now paying the price for that mistake. We have forgiven Bill. It remains difficult, however, each month as we see Ron’s parents brandishing new purchases as we struggle to meet minimal obligations and upcoming college expenses. So I guess we are in the process of continual forgiveness.

Business debt, personal finance, and family partnerships

Unfortunately, there is no way to “untangle” your debt from the business. You say it is a sole-proprietorship, although to me it appears to be a partnership, both of which leave the proprietors/partners personally liable for business debt, unless they are incorporated. How to address this debt is more complicated. It is one thing to acknowledge that money is owed, in this case, it will be figuring out what to do about it that will be tricky.

The first thing that strikes me about this situation is how far back the problem goes. You say you have had this business (and these financial problems) for 15 years. Any situation that long in the making will not be fixed quickly. However, decisions must be made and a course set to correct the situation, or you may eventually find yourself in bankruptcy. You say that until recently the two of you did not carry revolving debt, so you know how to handle money, but there may be no realistic way for you to support your business and finance your father-in-laws debts.

Your story is the perfect example of why people should be careful with whom and how they conduct business. Reluctance to confront family members when they do something wrong often makes a bad situation worse. This appears to have been the case here, and I think the first step to dealing with your situation is to be honest with yourself about your father-in-law’s actions. He robbed you and your husband when he paid himself more than was agreed upon and stole the merchandise he sold off the books.

It is one thing to admit that your father-in-law stole from you, quite another to decide what to do about it. I understand your husband’s reluctance to take legal action against his father, however I believe it is misguided. While the Bible does say we are not to take Christian brothers to court, in context that is an injunction against civil disputes. You are dealing with criminal actions, and I see nothing immoral about pursuing legal action in this case, especially if your father will not do right by you after speaking with church leadership about the situation.

I would recommend meeting with an attorney to discuss options. Once you have a good idea of what is open to you, you will be able to decide what you want to do. It sounds to me like your-father-in-law was a full partner in the business, which would make him equally liable for business debt. Even if you pursue no other legal action, at the very least, I would not make any more payments on anything in your father-in-law’s name, what would be the point? If they are his debts, he should pay them, and you gain nothing by paying them for him. Let the collectors come knocking on his door. His threat to bankrupt you if you send him his bills rings hollow.

Finally, I would recommend that the two of you reconnect with your church, other family, and friends. Meet with your pastor to discuss your struggles, especially where you are concerned about legal action against family, and how these business troubles are affecting your marriage. This type of situation is not the kind of thing you two can afford to handle on your own. You need the prayers of others, you need fellowship, and you need counsel. You need to face this challenge as a team, communicate with each other, and make decisions together. Remember that your marriage is more important than the business.

Do You Have Any Other Advice for Micki?

Something you think I missed? Drop a line in the comments below.

Have a question of your own?  Ask DFA writers for free!  🙂

*Disclaimer*
We accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material. Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Any advice taken from this site does not in any way establish a client/adviser relationship.  We always recommend that you consult with a licensed, qualified professional before making any financial or investment decisions.

Categories // Debt, Earn Money, Money Management Tags // Advice, business, Debt, Finances, personal, relationships

Valentine’s Day – Was It Worth Celebrating?

02.15.2010 by Matt Jabs //

Valentine’s Day is a Hallmark Holiday

For those unfamiliar, a “Hallmark Holiday” is a term used to describe a holiday created for commercial purposes that seeks to exploit the emotions of consumers for reasons of profit.

People may argue the legitimacy of this term, but for the intents and purposes of this article we will assume it true (mostly because I believe it… and I’m the author.) 🙂

Define your own celebrations

Despite popular cultural norms, we strive to choose our own celebration days rather than letting them be dictated to us by commercial entities or anyone else.  While we do celebrate some traditional holidays, we still try to do so in a way that makes us happy rather than just following along with the spending culture we’re inundated with and surrounded by.

Per celebrating loved ones, I endeavor to celebrate my love for them daily rather than certain days of the year.  I love my wife every day and hope to show her that as often as possible.  I love my mom every day, and hope to show her that as often as possible.  I love my sister every day and hope to show her that as often as possible.  You get the point.  Rather than picking days, I think it more fitting to try and make them feel special every time I come in contact with them.

Despite the aim to always honor loved ones, I still have particular days I like to focus on them but prefer to define these days according to the personal relationship, not popular culture.

Anniversaries

Anniversaries are a big one for me.  I view them as special because they represent the loving and life long union of two people setting off to share their lives with one another.  I like to show particular admiration for loved ones on these special days.

Birthdays

Celebrating the day people came into this world is another huge one for me.  What better opportunity to focus on individuals than the anniversary of their birth.

Although both of these event types are very commercialized in popular culture, I enjoy placing the focus on the person and the relationship rather than focusing on gifts of high dollar amounts.  I typically do this by expressing my appreciation for them through words, pictures, and memories, etc… or by meeting a specific need they have.

Valentine’s Day – What we did and how we saved

Since we do not celebrate this holiday in traditional fashion, we focused on making it a great day like we do with all other days.  Initially we planned to split a meal at one of our favorite restaurants then visit the MSU planetarium, but chose to avoid the crowds and stay home instead.  If you didn’t already know, we are in debt so we limit ourselves to a maximum of one night out per month.  Also, we decided long ago that dinners out should be limited to occasions that are special to us, so we chose to save our special dinner for next week… our 5th wedding anniversary!  🙂

Rather than going out, spending money, and fighting crowds… we made our favorite dinner together – Indian Madras Chicken Curry – and cuddled up to a good movie afterward.  We saved about $20 on the meal by cooking at home (which also provided us leftovers for the week ahead) and utilized our Netflix streaming subscription to watch a movie at no additional cost.

All said and done we saved about $30+ and spent a lovingly relaxing night at home eating our favorite dish and cuddling up to a great movie.

Valentine’s Day – What did you do and how did you save?

Do you believe in celebrating Valentine’s Day?  Did you celebrate it traditionally by spending money to enjoy each others company, or did you celebrate it creatively without focusing on gifts and evenings out?

Categories // General Tags // gifts, holidays, love, relationships, valentines day

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