By: David Litke
Whenever I sit down with a couple to analyze their budgetary habits, I am always struck anew by two things: 1) how, in the initial stages of our consultation, the couple is distressed and sees no way at all to changing their spending and living habits, and 2) how, after a process of analysis and thought and the encouragement of a counselor, the clients reach the illuminating realization that there is much they can do to refine and change these habits so as to create a more stable financial situation for themselves.
If the strategy of budget counseling is to live more frugally and create a stronger financial future, then what are the tactics? How does one begin? What is the day-to-day behavior that will set us on the road to our goal? It is well known in coaching circles that even a few small steps are enough to set one on the road to making long-lasting changes. So in this article I would like to share with you one insight which illustrates the psychological/behavioral side of the challenge.
Not so long ago, General Motors was the largest auto manufacturer in the world, peaking at 29% of the world market. At some point, well into the years of environmental awareness and the need to make cars more fuel-efficient, GM fell down on the job, saw Toyota surpass it as the number one car seller in the world and saw its market share drop far below its peak. In the 1990s, desperate to regain its share, GM initiated a program to restore its portion of the market to its high point of 29%. Throughout the company the number 29 became a rallying point and target whose ultimate purpose was for GM to restore its former glory and market share. Everywhere one looked throughout GM corporate offices and plants, one could find placards, buttons and stickers sanctifying the number 29. The number became a mantra and obsession for GM leaders, determined to reach at any cost that portion of the world market which had once been theirs.
But GM went about reaching the goal in the wrong way. While the strategy was clear, only drastic and short-sighted steps were taken. The company became addicted to short term tactics and gimmicks. It offered customers large discounts and interest-free loans so that sales would increase and a larger share of the market would be reached. GM allowed its energy to be diverted from programs which would have made a difference in the much longer term. It did not invest in designing a more efficient car, it did not streamline its production line and it did not sell off unprofitable divisions. As a result, the travails of GM continued to occupy the business pages of the newspapers for many years. The business world is replete with examples of companies whose race to profits involved either shallow and hasty planning (the “Ford Pinto”) or outright criminality (Enron), where the tactics did not serve the strategic goal.
Is home budget management any different? Not really. Reaching a worthy goal in home finance requires tenacity, patience and long term vision. Suppose you want to liquidate your overdraft. You’ve decided that you just can’t take living in minus anymore. To do it quickly would in most cases be the wrong way to go. You could try any of several drastic steps – dip into your emergency fund, borrow against a keren hishtalmut, delay necessary repairs to your home or car or radically change your spending habits in a way that would be unsustainable and would eventually get you back into the very hole you were trying to escape. Quick, snappy, short, drastic steps – these are not formulas for long term budgetary stability.
A worthy plan to eliminate an overdraft debt requires building a budget which will be sustainable. It demands lifestyle changes which are reasonable and will not make you so miserable that the whole budget process is doomed to failure. It requires responsible implementation and regular weekly review such that your progress will be slower but steadier, much like we have all experienced in dieting and exercising.
There are many other aspects of home money management which require this same discipline of well-planned actions in the pursuit of permanent stability. All depend on a grand strategic plan to be implemented with measured steps and tactics.
Subscribe to our free email tips: www.budgetrelief.co.il