Wi$e Up Teleconference Call Budget to Save August 31, 2006 Speaker 2 Ric Edelman Jane Walstedt: Now, I'm going to turn the program over to Gail Patterson, who is part of the Women s Bureau team that plans these teleconference calls, to introduce our second speaker. Gail Gail Patterson: Thank you, Jane. About Ric Edelman. Ric Edelman is one of the nation s most acclaimed financial advisors. He and his firm have won more than 60 financial, business, community, and philanthropic awards, and his commitment to teaching consumers about personal finance has established him as one of the most popular financial professionals in America. Ric is a #1 New York Times bestselling author. His five books on personal finance include Ordinary People, Extraordinary Wealth; The New Rules of Money; Discover the Wealth Within You; What You Need To Do Now; and the personal finance classic, The Truth About Money, which was named Book of the Year by Small Press magazine. Collectively, his books have sold more than one million copies, have been translated into several languages, and have educated countless people worldwide. Ric was named Best Talk Show Host in 1993 (AIR Awards) and continues to host weekly radio and television shows in Washington, D.C. He's a nationally syndicated newspaper columnist, publishes a monthly newsletter, and has built one of the most comprehensive free educational resources on personal finance online at RicEdelman.com.
He also is the author of a variety of video and audio educational systems that help people achieve their financial goals. Ric has been featured in numerous news articles, has appeared on hundreds of radio stations and every major television network, and has been quoted by dozens of newspapers and magazines. He has testified before Congress and was a delegate in the 1998, 2002, and 2006 National Summits on Retirement Savings. Ric is a sought-after speaker, widely acknowledged as one of the most entertaining and informative experts in his field. Welcome, Ric. Ric Edelman: Well, thank you very much, Gail. That was a mouthful. I'm happy to be here today, and I really appreciate your taking the time to talk about this important topic. My perspective on it is really a little bit different from Judy s and frankly differs from a lot of folks in the budget world. And that s because, as a financial planner, I'm more focused on the creation of wealth than the elimination of debt. So my perspective is a little bit different. And basically it s this, for the sake of conversation, let s put it this way-- I frankly think that budgeting is a real waste of time. And that sounds kind of crazy for me to be here talking about why you shouldn t bother to budget when we re in the middle of a phone call talking about the importance of budgeting. But here's why.
The reason that I'm not a big proponent of budgeting is that in my experience of working with individuals around the country over the past 20 years, I have yet to meet anyone who effectively on a long-term sustained basis budgets very well. Budgets, after all, are a mere promise of what you're going to do. It s a promise of how you re going to spend money. And, well, life happens. Life gets in the way, and all too often we discover that it doesn t work out the way that we ve intended. As soon the car breaks down and we run into an unexpected expense for car repairs, the budget is shot. And that is how people get tripped up, pulling out the credit cards and spending on things that they weren t anticipating. So rather than focusing on budgeting, which is a promise of what you re going to do, my preference is that you focus instead on spending. Let s take a look at how you really have spent your money, not [projecting] over the next 12 months, but instead looking at reality for the past 12 months. Because most of us are in relatively stable lives. We re married to the same person as we were last year; we re living in the same house; we have the same job; our kids are only one year older, but their lives are pretty much unchanged. Therefore, it s reasonable to assume that the money you spent last year will be pretty much the same as the money you re going to spend this next year. So, go backwards in your checkbook, take a look at the actual checks you wrote last year and categorize them. Pull out an Excel spreadsheet, or you can even do this with pen and paper, or if you use Quicken or some other money management software, you can do it there too, and track where you actually
spent your money. Determine how much you spent on everything from housing, food, clothing, transportation, meals, and on and on and on. And when you finish listing your expenses for the past year, you will in fact have a very good picture showing you exactly where your money went. This will serve as a much better estimate for you going forward than merely trying to come up with guesses as to what you think might happen, because too often, our guesses are too much off the mark. Fundamentally what it comes down to is that I am more concerned that you re accumulating wealth than with the fact that you re budgeting or carefully spending your money. For too [many] of us, the money we spend is not optional. I mean, the money you spend on your mortgage or rent payment, your car payment, credit card debts, food, medicine, health care, education costs for the kids -- all of these costs are really beyond your control. So, budgeting merely tells you what you re spending, but it doesn t really show you how to do something about it. So, what I would rather you do is add a new line item to your spending pattern and set this new line item first. What I m about to tell you isn t new. You ve heard every self-respecting financial planner say this to you for the past 30 years. And it s this--pay yourself first. If you will simply set aside a small amount of money at the beginning of every month, $100 a month, $500, $50, whatever the number happens to be. In many cases, you should be doing this through your employer retirement
plan. Have the money come straight out of your paycheck so you don t even have to give it a second thought. By doing that, by making sure that your saving has already been taken care of, I frankly, as a financial planner, don t really care what you spend the rest of the money on. As long as you ve already taken care of the need to save for college and retirement, well, then, how you spend the rest of your cash doesn t really matter a whole lot. The problem is that most people aren t saving the money at all because their attitude is, Oh I m going to spend what I need to spend and I ll save what s left. And of course, there s never anything left. So, let s reverse that process. Save the money up front and then you re free to spend what s left over. And if you run out of money at the end of the month, you re done. You re not allowed to use a credit card. You hear that TV commercial all the time, Don t leave home without it. Well, I would like to amend it to say, Don t leave home. I mean, forget about going into the mall and spending money that you don t have because all that s going to do is increase the indebtedness. So, pay yourself first, recognize that you have other expenses you re going to incur, pay for those, and then be done with it. And you ll discover that it s less time consuming, it s less burdensome, you won t feel trapped by being hassled with the need to track every single expense all along the way. And you ll have accomplished what the vast majority of Americans have failed to accomplish -- you ll be creating a savings plan and an investment strategy, and that is the key to creating wealth.
And with that I ll turn it back to our host. Jane Walstedt: Okay. Thank you very much, Ric. And we welcome different opinions from our experts here.