What's the Big Idea?
Ever wonder how Michael Jordan came to be the best basketball player that ever lived? Unlike the stories we hear of many world champions who set out for greatness from day one, MJ didn’t even think about professional basketball until deep into his college years at the University of North Carolina. As he explains in his book, he was always a one-foot-in-front-of-the-other kind of guy:
I approach everything step by step... I had always set short-term goals. As I look back, each one of the steps or successes led to the next one. When I got cut from the varsity team as a sophomore in high school, I learned something. I knew I never wanted to feel that bad again... So I set a goal of becoming a starter on the varsity. That’s what I focused on all summer. When I worked on my game, that’s what I thought about. When it happened, I set another goal, a reasonable, manageable goal that I could realistically achieve if I worked hard enough... I approached it with the end in mind. I knew exactly where I wanted to go, and I focused on getting there. As I reached those goals, they built on one another. I gained a little confidence every time I came through.
Consider the example of the German soldier who escaped a Siberian prison camp in the dead of winter during World War II. He had 10 bullets in his pocket, and every 1000 steps he took he transferred a bullet from his pocket to the chamber of his gun. He found meaning—and thus, strength—in the smallest of victories. After 4,000 miles and 3 long years, he finally walked out of those hellish winters and into the arms of his family.
So what does any of this have to do with budgeting?
When we think of budgets, we think of constraints, limitations, and restrictions, all organized nicely in a lattice of Excel spreadsheet prison bars. Budgets are plans, and plans are burdensome--but they don't have to be. As former President Dwight Eisenhower once said, “Plans are nothing; planning is everything”.
As the wide-eyed young, we all “plan” on getting rich—but we rarely lay out a plan to make it happen. Any long term goal you may have in life can only be accomplished by setting and completing short term goals first. Regardless of our different career paths, we all share the goal of achieving financial stability and prosperity in our lives.
So, what do short-term goals look like for the long-term aspiration of such prosperity? They look a lot like a monthly budget.
Let’s consider the financial situation of Michael Jordan’s wingman, Scottie Pippen. According to a report by Trey Kerby, a sports reporter for Yahoo:
“If you've read any of the numerous books about the Chicago Bulls of the 1990s then you know that Scottie Pippen is kind of funny about money. Raised in a poor household, Pippen jumped at the chance to sign a long-term contract prior to the 1991-92 season, choosing the security of a long deal over being paid what he was worth. Throughout his career, Pippen would endorse anything and everything, assuring that the money kept flowing in. Following the end of his playing career, Pippen was involved in a number of bad business deals that left him nearly broke. One of the notable money mistakes that Pippen made was the purchase of a $4 million Gulfstream jet in 2002. Due to a missed inspection, the jet's engine needed $1 million worth of repairs shortly after the purchase.”
Although Scottie earned millions throughout his long career, he managed to lose nearly all of the fruits of his labor because of his inability to properly maintain his budget.
So, creating a budget is important, but what’s the best way to do it?
At Moneythink, we offer our students a seven-step process for budgeting:
What's the Significance?
It’s important to be realistic with estimated expenses. Factor in entertainment and incidental expenses every month. Put a little money away for those “just-in-case” expenses such as unanticipated medical costs and auto repairs. Set small goals first and start by saving small amounts every month, gradually increasing the amount you save over time. It’s all about building good habits and gaining momentum.
Can you become the Michael Jordan of your own finances? Maybe, but let’s start with skipping the daily latte. Oh and don’t buy any jets while you’re at it.