Budgeting in the New Economy: Finance 101 for the Frum Family
In one of Rabbi Aryeh Kaplan’s books on Jewish meditation, he asks where meditation is mentioned in the Torah. He goes on to say that some things were so obvious to our ancestors, they did not have to be stated outright. The concepts were known to all.
Finances are in the same category. Certain notions that are promoted as novel by contemporary finance gurus were once obvious to everyone. Our grandparents did not have to be told not to borrow money to buy things they could not afford, for example. They did not have to be told to save for retirement or to shop wisely. These ideas were self-evident. Today, somehow, they are no longer common knowledge.
Where We Are Today
Many frum families are suffering financially. They cannot pay their bills. They feel that life is pulling them along and that they are not in control. In many of these cases, the problems could be greatly mitigated with proper financial education.
Before our children get married, we educate them about shalom bayit. But we do not teach them about managing money—despite the fact that the Talmud teaches that strife in the home is due to money problems (Bava Metzia 59a). We need to start getting educated about how to manage money, and we need to teach our kids how to do so as well.
Most of us would be quite devastated if at our fortieth wedding anniversaries we realize that we could have had a million dollars in a stock account had we adopted simple steps and avoided waste. No one wants to look back and regret the thousands of dollars spent on frivolous purchases and credit card interest.
What Can Be Done
What is needed is simple: family finance control.
This kind of money management consists of three simple steps. At the outset, I want to emphasize that this approach will not enable a family to survive without a reasonable income. It is simply a guide for those families who should be making it but are not.
Step 1: Make a budget
In today’s economic climate, budgeting has become a necessity. A family budget should include general categories and subcategories. For example, “car” should be a general category. Within that category, one should include the following: car payments, gas, insurance, and maintenance. In order for a couple to create a budget they need to ask themselves what is important to them. Do they prefer to lease a car or to spend Sukkot in Israel? Do they prefer to use disposable dishes or to take an annual vacation to Yellowstone National Park? No one can make these decisions for you. When working out a budget, start with the expenses that are unalterable. For example, if you or your husband commute by car, gas should be one of the first entries in the budget. Additionally, every budget should allow for savings. Families need to save for retirement, simchas, cars and rainy days. (For a sample budget, visit www.ou.org/jewish_action.)
Step 2: Do Research
Read books on family finance. They will give you helpful tips on how to save on your day-to-day expenses. Meals, for example, should be planned with an eye for cost. Probably the best such book on the market is The Complete Tightwad Gazette by Amy Dacyczyn. Amy’s goals were to have a large family and be a stay-at-home mom. To manage financially, she analyzed every family purchase decision: appliances, baby products, family menus, utilities, et cetera. Her book provides countless money-saving ideas such as making sure your appliances are energy efficient (fluorescent light bulbs will reduce lighting costs by 80 percent); using real dishes instead of disposable and relying on hand-me-downs for children’s clothing.
In today’s economic climate, budgeting has become a necessity.
Step 3: Tracking
You need to track your spending. In other words, you need to record what you spend. The best way to do this is with a program called Quicken, a personal finance software, which enables you to record every check, credit card purchase and cash purchase. You can then run reports to see if you are achieving your budget goals. Without tracking your expenditures, you have no real idea where your paycheck goes each month.
How much time does all this require? I suggest taking care of your finances once a week—every Motzaei Shabbat you could pay all your bills and enter your expenses into Quicken. It really does not take that much time.
No doubt some people are afraid to budget; they think it is too confining to record and analyze every purchase. But in reality, the lack of a budget is confining. With a budget, you will have a line item for clothing. You can therefore spend that amount without feeling guilty. You can also spend on hobbies, recreation and travel. You will start to confront the simple concept of opportunity cost: If you spend less on item A, you will have money available for item B. Try this plan for six months and then ask yourself if you feel more financially in control and less stressed.
Eli Pollock is a self-employed CPA in Baltimore, Maryland. He can be reached at elipollock2@yahoo.com. He is available to speak to groups and teach budget creation and expense tracking on Quicken.