Defrag your budget!

Remember having to defrag your hard drive?

I’m probably showing my age, but over the years I got very used to “defragging” my computer’s hard drive on a regular basis. But ever since my way-smarter-than-me son-in-law Caleb set me up with a new computer with a solid state hard drive, that process is no longer necessary. So I haven’t heard the word “defrag” spoken out loud in a long time. But it came immediately to mind recently when I started analyzing the finances of a new coaching client of mine.

I sat down with this new client couple the other day. Early 30’s, 3 kids, house in the country, a teacher and a college professor. Just classic Americana all the way around, and sweet as can be. They had even coordinated Financial Peace University at their church a couple of times, a few years back. So they know the concepts that I teach.

But they have struggled ever since then in making progress paying off their debt. That’s why they called me.

They do a budget. They are frugal as can be. But no matter what they do they can’t seem to get any traction on their debt snowball. Super frustrating for them, I’m sure.

So as usual, I asked them a ton of questions in preparation for our first coaching session. I try to immerse myself in my client’s finances as if I’m living their life. Not just the numbers, but lifestyle, family, stuff about the kids, you name it.

Once I feel like I really understand their situation, I ask myself “Knowing what I know, what would I do if I woke up in their shoes?”

These folks were really only making one mistake. And it’s so simple, really. It was staring them in the face the entire time and they couldn’t see it.

So I asked them this question.

“Remember in the budgeting lesson of Financial Peace University? Picture Dave (Ramsey) standing on stage, telling you how to do a budget. What does he say is the VERY first step?”

The first step

If you’ve taken FPU, stop here and ask yourself that same question. What is the VERY FIRST step when you sit down to create your household budget?

Wait for it....

Wait for it...

You write your income at the top of the page.

It took a little prompting to get that answer out of them, as they kept jumping to later steps. But that’s still not the complete answer. What’s missing from that sentence? Again, you FPU graduates....say it with me.

You write the total of ALL your income (for the upcoming month) at the top of the page.

Aha!!! Ay, there’s the rub! (for you Shakespeare nerds). They weren’t writing down the total of ALL their income.

Here’s what they were doing wrong.

And I’ve seen other clients do it before, but not nearly to the extreme that these folks were.

Their budget had become fragmented, and needed to be