How many times have you heard “You need a budget?” My husband and I spent hours tracking, and then arguing, over our different ways of tracking money. We had our versions of budgets, and every time we sat down to review the numbers (which were essentially identical), we ended up fighting. It was exhausting and depressing. Each time, I promised myself that I wouldn’t get caught up on details, and nearly every time, we got side-tracked. We were smart, had similar values, were saving, both of us were budgeting, and we were still fighting. What gives?
Our problem was that we did not have an agreed financial system. A financial system is a set of steps and principles, including roles and responsibilities and time-frame to manage your household financials. A system is the method you use to achieve a consistent result.
Actually, Glen and I did have a financial system; it was just a dysfunctional and undefined system with a consistent result of arguing. Our system followed a consistent method of operating in our separate spheres, and when one of us wanted something, we would set up a meeting. During that meeting, we usually didn’t discuss our goal for the conversation, but focused on double checking one another’s numbers. Upon finding a flaw, we would discuss our methodology. Then we argued. I dreaded talking about money, because this method had become a habit.
We finally changed our system, with our first financial conversation.
Many people believe that if you budget, then you will solve your financial problems. While a budget is useful, a budget is simply a tool to help you as part of your financial system. Some people do, in fact, simply need a budget. There are many terrific tools, such as You Need A Budget (YNAB), Microsoft Excel templates, Google spreadsheets, and Quicken to name a few; but the magic of these tools is not the tool. The magic is the system you develop to review your finances, and make behavioral changes based on the information in the tool. This applies to young and old, rich and struggling, married and single.
Makeup: System vs. Tool
If you struggle to grasp the difference between a system and a tool, think about applying makeup.
Tools are the products you use: foundation, eyeliner, mascara, eyelash curler, brush, washcloth, etc.
System is the steps and principles you follow to look a certain way: first you wash/dry your face (principle of clean), then you put on lotion (principle of care), then foundation (your base) and so on with steps and principles, until you take a final check in the mirror and approve the outcome to go on with your day.
The system for applying make-up, likely includes some things you don’t always notice: time, location, and people involved.
Time/Frequency relates to when and how often you perform steps: You probably apply make-up in the morning, or before going out to an event. Some things you only do periodically, perhaps, like tweeze your eyebrows.
Location is the physical place you take action (could be more than one): Most people keep and apply their make-up in the bathroom.
People/Roles are who is involved and what function that serve toward the outcome: You probably are the only one involved in putting on make-up, but you might talk to someone else about colors or look at a YouTube video. Notice that you typically exclude some people from the process of putting on make-up. For instance, I do not want my kids around, if I want to be efficient. Who you exclude matters as much as who you involve.
For your system to work, you need tools. However, tools alone do not define your method. Your method is also likely different than another person, because you desire a different outcome, and you have different characteristics. Someone who struggles with dry skin will have a different system and use different products, than someone with oily skin. Someone with more experience will take a different approach and may have different tools than someone with less. Someone with heavy debt may focus on something such as debt counseling that someone with little debt, who instead is making different decisions.
Which Comes First? System or Tool?
Your financial system is more important than your financial tool. The reason for this is that your system, or method, typically determines your behavior more than the tool. For instance, my husband and I both had tools that we used to manage our finances: Excel spreadsheets. If we really had to make a financial decision related to the house or another large financial item, we had the tools to understand and make a decision. If our tools had disappeared, we still would have had a system that required thinking through a financial decision, and that habit of evaluating would have forced us to find another tool. What we didn’t have was a good system. Our system didn’t have the key items defined:
Time/Frequency: We only checked in with one another when there was a pressing need. Our meetings were ad hoc, and often we didn’t consider a good time to talk – during the day, Glen was distracted with work, and during the evening, I was tired and grumpy.
Location: We never considered a good place to sit down and talk.
People/Roles: We weren’t clear who was supposed to do what. We often discussed the “right” or “wrong” way, based upon our parents. While our parents values and principles were great to discuss and evaluate. Our parents in person or in our heads did not need to be a part of most of our conversations.
Steps/principles: We didn’t have a format to talk about money, which made it easy to get side-tracked and become critical of one another.
However, one of our main realizations of late was that we were spending too much time updating our spreadsheets, which reduced our time to discuss money management. Which lead us to purchasing a financial product to help with money management. We had figured out a more routine system for talking: about once a month, usually in public, who was responsible for specific tasks, and clarified a key principle which was to always have a focus for the conversation. Once the system was in place, we realized we needed to spend more of our limited time discussing money management, rather than updating spreadsheets. At that point, we found a tool that we could use jointly.
Why You Need Both A System and a Tool
No matter your financial situation, you need both a system and tools to manage your money. My husband and I don’t use the YNAB tool, because the tool is primarily designed to help people who struggle with living within their means and getting out of debt. Generally, our system of conversations allows for conversation and transparency. While creating a system for two stubborn individuals is difficult, we are ultimately are stronger together. When I was single, my financial system was significantly simpler, but still involved a monthly check on my finances. If I were still single at this point in life, I would probably consider finding someone with more financial experience to talk to periodically, whether that be a trusted friend, family members, of financial adviser.
If you want to live a life that mirrors your values, you need a system and the tools for managing your money. If you understand the difference between the two, you can build a better method for managing money, and living the life you desire.
Photo by Cory Schadt on Unsplash
- It’s worth noting that most young women are taught more about how to apply makeup, than they are how to manage money. There are a few reason for this. The first is that parents and other adults are typically poor role models and incompetent teachers when it comes to money: they probably couldn’t explain their values, systems, or tools. The second is that young women have relatively easy access to makeup, but limited access to money, which explains why we practice and experiment with makeup, but not with money. The final is that make-up provides an immediate sense of gratification: you feel you look better to the outside work, and you feel like more of an adult. Oddly, the third point does apply in many ways to money, but we typically aren’t taught that.
- To read more about steps to simplify a conversation on finance with your partner: 4 Tips to For a Successful Financial Conversation with Your Partner