Introduction1

In early September, Jackie McKenzie stood in the checkout aisle of the grocery store and watched with fear as the cashier rung her up. With each quick swipe of the cashier's hands, McKenzie looked at the total price on the monitor and knew she was going to come up short on money for her groceries. Again. Once the cashier was done, sure enough, the total of $150 was more than McKenzie had in cash or checking, and her credit card was almost maxed out for the month; she'd last used it on one of her bimonthly rituals?a shiny red pedicure. She started sweating with embarrassment as she had to ask for certain items to be removed. The cashier sighed exasperatedly as she deducted the items, and McKenzie was sure she even felt some other customer's eyes looking in her direction. Somehow she had lost track again of how much she had spent that month, and immediately began regretting that red dress she had bought on an impulse at the mall two weeks before.

As McKenzie left the supermarket with only half of what she needed for her and her youngest daughter, Millie, she was depressed. She felt like the same gray cloud followed her wherever she went, and at the end of every month, she felt like she was in a deep hole she could never dig her way out of. She was so stressed that she stopped at the gas station on the way home to buy cigarettes. She would have to call Kerry again to ask for her help with monthly expenses, and she was dreading making that phone call.

Kerry was her oldest daughter, and was studying for her master's in business administration (MBA) at the business school at Wesley University. She also worked part-time as a bank teller to help support her studies. McKenzie was very proud of her and everything she had accomplished, and often felt ashamed of having to turn to Kerry for help when she was short on cash, but she needed to make her car payment for August, and had no one else she could ask for help. As she dialed Kerry's number, she felt her heart pounding a little? she always felt a little anxiety about asking Kerry, who was very frank and outspoken, for help; McKenzie often felt like she was in court presenting a case before a judge.

"Yes, go ahead," Kerry answered the phone in her usual strong, take-charge manner.

"Hi Kerry, it's Mom. How are you?" McKenzie knew she was stalling with the small talk, but she was still preparing herself to ask for money.

"Mom, tell me what you need. Did you fall short again this month?" Kerry asked her, already guessing that McKenzie needed her assistance. This wasn't the first time McKenzie had made an urgent phone call to her daughter asking her for help.

McKenzie told Kerry about falling short on groceries and needing help with her car payment. "How much is the car payment?" Kerry asked brusquely.

"It's $200. But any amount you can give me would really help. Thank you, Kerry."

"Don't thank me yet, Mom," Kerry said. "We both know that this happens every month?last month it was needing a bit for the rent; the month before that it was your electricity bill. Every month, I beg you to make a budget, and you promise you will, but you don't, and we wind up here again. I know there've always been some serious issues with how you manage your money, and I've always tried to help you out whenever I can. But I think that there's a deeper problem here, and if I keep enabling this bad habit, I will never truly help you."

"What do you mean, Kerry?" McKenzie asked, feeling her heart sink. She hated when her daughter got angry with her; the pain was almost too much to bear. Right then, she felt like the child, and like she was being scolded, and it made her upset.

"Well, I'm going to be very honest with you, and you're not going to like it." Kerry continued. "I think that you're financially irresponsible and living beyond your means, Mom. You refuse to make a budget, and I think that's why you keep falling short every month. Of course I want to help you, but there are deeper issues to fix here?instead of spackling the walls, we need to go rebuild the foundation entirely."

"That might be true, but I'm not sure why you think you can talk to me this way, Kerry," McKenzie said sharply. "Yes, I came to you for help, and yes, you're always the first in the family to speak your mind, but remember, I'm still your mother. I feel disrespected. I'm going to try to work this out on my own or find help somewhere else." McKenzie was sick of being lectured and talked down to by Kerry; just because she went to college, did she think she was smarter than everyone else?

"I'm really sorry you feel that way, Mom," Kerry said, audibly upset. "I was only trying to help you, but now I can see that I should stop being so controlling. I am going to take a step back and let you try to manage on your own. You brought Millie and me this far, after all. If you need my advice on budgeting, give me a call."

The Root of the Problem

Of all the things she hated in the world, McKenzie hated fighting with her daughter the most. Over the next few days, she thought about what Kerry had said, and she realized that most of her anger had really grown from shame. She needed to figure out how to manage her money better. She tried to make a makeshift budget by writing down all the things she had paid for over the previous month, but it was hard to keep track, and McKenzie was sure she was forgetting some things. She wasn't sure what to do next.

There was also the pressing issue of her August car payment, which was almost a week overdue, but McKenzie had already called in all her favors and had no one left to borrow money from. She knew Kerry could help her with the car payment, but Kerry would obviously only help if she was willing to make some changes. She really needed Kerry's support?but she had to admit to herself that she'd gotten too used to relying on Kerry when things got tough financially. She knew that even though it was easy and convenient, it couldn't go on like this. McKenzie loved her daughter, and she knew that Kerry also had her own expenses to take care of, and would soon want to start a family of her own. McKenzie realized that she needed to swallow her pride and accept her daughter's help, so she asked her to come over to talk.

"Okay, Kerry. After trying to do it myself, I now understand what you mean," McKenzie conceded when Kerry arrived. "Please tell me what to do and I'll do it."

"I'm so happy you called me over, Mom. I'm glad to hear that you're willing to listen. We're going to fix this. First, we have to look at the root of the problem, which is how you manage your money. Have you ever tried to make a personal budget before?" Kerry asked, looking over the jumble of numbers and papers her mother had presented to her.

"Not exactly," McKenzie admitted. "I usually keep an idea of what things cost on average every month in my head and try to take that into account when I spend. I check my account online and see the damage at the end of the day or the end of the week."

"Okay, I can already see where some of the problems lie," Kerry said. "You can't keep living paycheck to paycheck by spending your income down to the last penny. You have make sacrifices, save, and spend wisely. Your expenses can't exceed your income, but that's how you've been living. I remember ever since we were kids, your motto was always: 'If you have it, spend it!' And I know that's because your own parents didn't teach you about financial responsibility. But I'm going to help you, Mom. Together we're going to look closely at your current spending habits, then I'm going to help you outline a budget of your last month in expenses, and once you see all the evidence there on paper, hopefully you will see some issues coming to light."

"Okay, what's the first step to making a real budget?" McKenzie asked.

"Well, everyone has their own personal methods, but the main idea is that you have to subtract all your expenses from your income, and make sure you're not spending more than you earn. If you keep track of all your expenses during the month?whether it's in an old-school ledger, in a journal, with special software, or even online, it'll be much easier to make sure you don't exceed your income or make too many impulse buys. What's your monthly income?"

"At the dance studio, I make $2,900 after taxes as an instructor," McKenzie said. Talking about numbers and calculations always made her slightly dizzy, and she was already starting to feel it.

Fixed Expenses versus Variable Expenses

"Okay, I'm glad you said 'after taxes,' because it's easy to make the mistake of basing your expenses on your income without factoring in taxes first. Now that we have your monthly income, let's talk about your fixed expenses," Kerry said.

"What are fixed expenses?" McKenzie asked, although she had a guess about what they were.

"Fixed expenses are exactly what they sound like?these are the monthly payments that cost the same each month, and you have to pay them on time or face some serious life consequences. Rent, mortgage, Millie's school fees, loans?like student or personal loans?insurance?like health, life, car, and home or renter's insurance?credit card bills, and car payments all count as fixed expenses. Miss your payments on one of these and you can see how your quality of life will sharply decrease?whether it be facing no home to live in, no car to drive to work, or a ruined credit score and debt collectors. These expenses should be thefirst things you take into account when you make your budget. Not all fixed expenses are necessities; you can find cheaper prices on some fixed expenses like cable, internet, and phone services?and some of those expenses can even be cut altogether. Fixed expenses usually take a large portion of your monthly income," Kerry said. "The next expenses you should include on your budget are the variable expenses."

"And those are the ones that aren't as important as fixed expenses?" McKenzie asked, jotting down the different expenses in her own budget.

"Well, not necessarily," Kerry said. "Groceries and gasoline are examples of variable expenses?meaning the cost may differ from month to month. Of course, you can always set a specific amount in your budget for gas or groceries to make sure you stick within a certain price range to get the necessities you need at the supermarket. But those prices will fluctuate from week to week and month to month. You can also cut costs on these expenses by getting cheaper brands than you usually do. Variable expenses also cover shopping, eating out, and entertainment?going to the movies, stuff like that. Both fixed and variable expenses fall under either necessities or luxuries. There are fixed costs that are luxuries: cable TV, smartphones, and driving when you can walk, bike, or take the bus. And there are variable expenses that are necessities: gas, groceries, and utility bills."

"Yes, this all makes perfect sense," McKenzie replied. This was all common sense to her, of course; it was just putting it all into practice that seemed hard.

"Now, Mom," Kerry said, "If we separate necessities from luxuries, we can also begin to see the first things in your monthly budget that we can eliminate. How often do you get a pedicure?"

McKenzie blushed. Kerry knew all her weaknesses?shopping, smoking, and getting pedicures. "Twice a month," McKenzie answered. She already knew where Kerry was going with this.

"I know it's your own money?and you can spend it however you like, of course. But I'm just helping to point out certain habits that might be costing you. With these frequent pedicures, you can see that's $30 twice a month on a luxury. Then think about how much were you short the other day at the grocery store," Kerry prodded further.

Fifty dollars, McKenzie thought in her head, but she didn't say it to Kerry. "Okay, I see what you mean now, Kerry. It's trying to find the sensible places to tighten the belt every month."

"Exactly, Mom. You'll be surprised how much you can save annually just by making small personal budget cuts. Of course once you've made room for your necessities and your fixed expenses, and allow enough of what remains for savings and emergencies, you can use the leftover funds for 'discretionary spending'?meaning you can spend it on whatever you want. So only these funds can be used on your motto of 'If you have it, spend it'. The leftover discretionary funds are what you should use for your cigarette money, your pedicure money, and the money for that cute red dress you're wearing. Unfortunately, many people will not have a lot of discretionary funds left over once they balance their budget, so you may have to pick your poison and spend on only one luxury."

"Okay, Kerry. I got it. I see already how I've been going about it all wrong," McKenzie said, taking in all the advice and writing down in detail each expense from her budget as Kerry mentioned them (Exhibit 1).

"I'm glad you see that already, Mom. I'm going come over again tomorrow and show you how to take all the numbers you've written down for your income and fixed and variable expenses to draw up your first personal budget; then we can see how your income is really being managed and distributed across expenses."

Tips for Balancing the Budget

The next day, Kerry came over with notes, tables, and charts. McKenzie felt like she was getting a real business presentation, and she was so proud watching Kerry explain all the financial details. McKenzie smiled through the entire lesson, and kept making additions to her handwritten budget, just as Kerry had instructed. Finally, Kerry showed McKenzie the personal budget template she had made up for the last month of expenses. It was mostly empty, with only two numbers filled in (Exhibit 2).

"This is a monthly budget template I personalized for you," Kerry said. "You can get budget templates like this online for free to help you with your budgeting. I only know a couple of your expenses, so I've filled them in for you. But you will have to fill in the rest yourself."

"Okay, I will," McKenzie said, determined to show Kerry that she could finally get her spending under control.

"Some quick advice, Mom?I think you should always aim to save at least 10% of your income, and therefore not spend more than 90% of what you earn. Make sure you're not overspending in luxury areas while saving nothing! You should also make sure you're saving enough of your income to have at least some emergency funds in case anything ever goes wrong with you or Millie, God forbid. To balance your budget? which means making sure your total monthly expenses aren't more than you make a month?you have to make spending cuts. Only you can decide what those areas are, and choose what expenses are your priorities. I'd really like to see you balance this budget for next month, so I'm going to give you some easy tips on good ways to cut down on expenses right away," Kerry said, handing her mother a list.

Kerry's budgeting tips

1.Keep your receipts. Keep a record of everything you buy to help you know exactly how much you're spending and which items are most expensive or most essential (those you purchase and use frequently). Use the categories we discussed, or those in the template.

2.Keep a budget journal, or a ledger?whichever is more comfortable?and keep track of every cost?even overlooked fees like ATM costs. Give yourself a goal of how much you want to save for the month.

3.Try to carry around a designated amount of cash instead of your credit card for at least a week so you will have a finite budget and take note of the money actually dwindling before your eyes, instead of from your bank account online.

4.Dine at home more, and eat out less. That means fewer happy hours as well.

5.Drop expensive habits and don't spend on luxuries you cannot afford.

6.Don't try to keep up with the Joneses. Your flashy neighbor might be drowning in debt.

7.Walk to the pharmacy for small errands instead of driving. Take the bus sometimes.

8.Always make payments on your debts, and pay your bills on time.

9.Doing your nails is not a necessity. Forbes estimates that you could save up to $20,800 in your lifetime if you pocketed all your mani/pedi money!2

10.Be thrifty but don't stress out?still treat yourself once in a blue moon.

Budget Ultimatum

McKenzie was so grateful for Kerry's lesson and knew she would use most of what she learned. She asked Kerry if she would still be able to help her with her car payment this month.

"Now that I've given you these tips, and explained budgeting to you, I want to see you balance your current budget first," Kerry said. "Once you've decided how you're going to do that, and choose what expenses you're going to cut back on, I will help you with the car payment. I think that's fair."

"Yes it is. Thank you so much, my dear. This month, I'm going to use all your tips and advice to make cuts to my spending and balance my budget. I won't let you down," McKenzie told her daughter.

"Okay, good," Kerry said. "I hope you'll be able to manage your spending wisely and balance it. I look forward to seeing your new budget soon. Good luck, Mom."

After Kerry left, McKenzie looked over the notes, tables, and tips that her daughter had left for her, and used her handwritten budget (Exhibit 1) to fill in the new personal budget template Kerry had made for her (Exhibit 2). After she did this, McKenzie began making a plan for how she was going to balance her budget in the coming month of September. She and Millie would have to make some slight adjustments to what they were accustomed to, but as Kerry had showed her, it would be better for the family's finances in the long run.

It was a hard adjustment at first, but over the course of the next month, McKenzie started doing quite well with managing her spending?so well, she thought, that she might just deserve a new red pedicure. She was tempted, but tried to put that out of her mind by focusing on recording her personal budget, on minimizing all her variable and luxury expenses, and by cutting her spending overall. When the end of the month rolled around, she was proud of herself, and was finally ready to show Kerry the brand-new personal budget she had made for herself.

Exhibit 1

One Last Pedicure: Balancing a Personal Budget

McKenzie's Handwritten Budget

MY BUDGET - August Monthly Income : $2900 MY MONTHLY EXPENSES Rent - $ 850 Groceries - $110 ( 8/ 1 ) Car Payment - $ 200 1 8/12 - $50 Fixed Car Window- $50 11 8/30 - $140 Gasoline - $70 Household Supplies - $10 $30 Shopping $25 - $25 Book bag - $25 Pens, pencils notebooks - $30 utilities 2 DVDS - $30 1 Video Game - $30 Electricity - $35 8 packs of Cigarettes - $ 80 Gas - $25 Water and Sewer - $ 10 Clothes - $70 (8/7 ) Phone - $55 8 /18 - $ 45 8/21 - $35 ( Shoves) Cable + Internet - $55 Beauty Supplies - $15 Other Monthly Bills Restaurants Going Out Joe's Italian - $30 Credit card bill - $35 Hal's Burger - $25 Movies - $20 (8/5) 11 8/8 - $20 Renter's Insurance - $12 Vita Pizza - $20 "1 8/22 - $20 Student loan payment - $150 . Xscapes Nightclub Car Insurance - $50 $40 Gym Membership - $ 15 Salon Millie's school fees - $ 200 Plus Pedicure 8/1 - $30 ($5 Tip ) Dry Cleaning - $25 Pedicure 8/15 - $30 ($5 Tip ) Millie's Relaxer - $65 (Plus #o Tip) Hair Extension: Touch- up ( 4 Tracks) - $40Total Monthly Income: $2,900 Balance: HOUSING Monthly Cost TRANSPORTATION Monthly Cost Rent/Mortgage $850 Vehicle Payment $200 Phone Bus/Taxi Fare Electricity Insurance Gas Gasoline Water and Sewer Maintenance Cable and Internet Subtotal Supplies Maintenance FOOD Monthly Cost Other Groceries Dining Out Subtotal Subtotal INSURANCE Monthly Cost EDUCATION Monthly Cost Home/Renter's High School Fees Health School Supplies Life Other Subtotal Subtotal PERSONAL CARE Monthly Cost ENTERTAINMENT Monthly Cost Medical Streaming Services Hair/Nails Video Games Clothing Movies Dry Cleaning Concerts Gym Night Clubs Other Cigarettes Subtotal Subtotal SAVINGS Monthly Cost LOANS Monthly Cost Savings Account Personal Retirement Student Emergency Funds Credit Card Subtotal Subtotal Total Monthly Expenses: Balance:Total Monthly Income: Balance: HOUSING Monthly Cost TRANSPORTATION Monthly Cost Rent/ Mortgage Vehicle Payment Phone Bus/Taxi Fare Electricity Insurance Gas Gasoline Water and Sewer Maintenance Cable and Internet Subtotal Supplies Maintenance FOOD Monthly Cost Other Groceries Dining Out Subtotal Subtotal INSURANCE Monthly Cost EDUCATION Monthly Cost Home/Renter's High School Fees Health School Supplies Life Other Subtotal Subtotal PERSONAL CARE Monthly Cost ENTERTAINMENT Monthly Cost Medical Streaming Service Hair/Nails Video Games Clothing Movies Dry Cleaning Concerts Gym Night Clubs Other Cigarettes Subtotal Subtotal SAVINGS Monthly Cost LOANS Monthly Cost Savings Account Persona Retirement Student Emergency Funds Credit Card Subtotal Subtotal Total Monthly Expenses: Balance