Mineral Wells Index, Mineral Wells, TX

Online Only

April 14, 2013

Slate: A better way to manage your household budget

CHICAGO — When I meet people on airplanes and they find out I'm an economist, they usually ask about stock tips. When I explain I'm not that kind of economist, they next ask why we couldn't predict the crisis. I'm not that kind of economist, either. Sometimes, they end with something about household budgeting — how do I know if I'm overspending on rent? I'm not really that kind of economist either — no academics are. But in this case, I think I might know more than the usual experts.

Most people who want to know about household budgeting turn to someone like personal finance guru Dave Ramsey, who has a carefully crafted household budgeting system. His, like many others, relies on a simple idea — sometimes called the "envelope system" — where you put your gas money in one envelope, your grocery money in another, etc., and spend only within a category.

This idea is clear and elegant — even if you don't actually use an envelope, it seems like it could be easy to stick to, and it has a nice old-timey feel. There is a problem, though: It is in violation of basic economic principles.

The principle in question here is that "money is fungible." In reality, all dollars are the same. There is no such thing as a gas dollar, a grocery dollar, a "fun" dollar. The Ramseys of the world argue you should just apportion them into the envelopes depending on what you think you might spend. But doing it this way is not actually the best way to dole out your money; you are not optimizing. Your money is just not working as hard as it should.

The system works great, as long as nothing ever changes. But the minute that some price changes, you're in trouble. Here's an extreme example. Imagine you drive to work, and your "gas money" envelope contains enough money to get you to work for the month, and maybe a little cushion. But then gas gets more expensive. You may first react by switching to a worse grade — say, from premium to regular (research shows many people do this). But if gas prices go up even more you simply will run out of money in the gas envelope. And then you won't be able to get to work. Strictly following the envelope system here would be much, much worse than "cheating": It's certainly bad for your household budget if you miss work.

Text Only
Online Only
  • touch.jpg Divorce is on the rise, and it's the baby boomers' fault

    A new paper from demographers at the University of Minnesota found that the age-standardized divorce rate has actually risen by an astonishing 40 percent since 1980.

    March 29, 2014 1 Photo

  • barbour021614.jpg No shows escaped death by Craigslist killer

    The young woman who says she was driven by satanic spirts to commit a cross-country murder spree over the last six years says authorities are not taking her claims seriously and that she tried to lured other central Pennslyvania men into her death snare with online companionship ads but they didn't show up.

    March 29, 2014 1 Photo 2 Stories

  • firefighters.jpg VIDEO: Firefighters sing song from 'Frozen' to calm girl stuck in elevator

    Firefighters in Reading, Mass., sing the Disney power ballad known by children everywhere -- "Let It Go" -- to calm a 4-year-old stuck in an elevator.

    March 29, 2014 1 Photo

  • dog-sunglasses.jpg Do animals have a sense of humor?

    Right now, in a high-security research lab at Northwestern University's Falk Center for Molecular Therapeutics, scientists are tickling rats. Their goal? To develop a pharmaceutical-grade happiness pill. But their efforts might also produce some of the best evidence yet that humor isn't something experienced exclusively by human beings.

    March 29, 2014 1 Photo

  • taylor.armerding.jpg Put teens to work by laying off minimum wage rhetoric

    Idle teen workers may be a national problem, but frugal private employers aren't the reason for it. Minimum wage hikes - like the one championed by President Obama - squeeze these marginal jobs out of the economy.
     

    March 29, 2014 1 Photo

  • Screen Shot 2014-03-27 at 2.40.34 PM.png VIDEO: Would-be carjacker stymied by stick shift

    A man ordered a mother and her son out of their SUV at gunpoint in an Omaha neighborhood, but was forced to flee on foot, police said, because he didn’t know how to drive a stick shift.

    March 27, 2014 1 Photo

  • news_zuckerberg.jpg The logic of Facebook's multibillion-dollar shopping spree

    Yet again, Facebook has spent a gaudy sum of money to buy a hot startup. This time, it's virtual reality pioneer Oculus VR, at a purchase price of $2 billion. And don't be surprised if Mark Zuckerberg continues on his buying spree.

    March 27, 2014 1 Photo

  • Newborn.JPG Census: U.S. has fewest births since 1998

    The U.S. recorded the most deaths in its history and the fewest births since 1998, resulting in the lowest population gain from natural causes in 35 years, an analysis of 2013 Census Bureau estimates released Thursday shows.

    March 27, 2014 1 Photo

  • news_mudslide.jpg Mudslide region deals with 'mind-numbing' disaster

    As hundreds of workers spent a fifth day digging through debris and wreckage, the death toll increased to 16 and was expected to keep rising; worse, no survivors have been found since Saturday, the day the landslide hit.

    March 27, 2014 1 Photo

  • sleeping-woman2.jpg 8 million people take prescription sleep aids, but these drugs have risks

    About 8 million adults turn to prescription sleeping pills for help every month, according to a study published last year by the Centers for Disease Control and Prevention. And yet, one specialist warns, these medications all have flaws.

    March 26, 2014 1 Photo

Featured Ads
Mineral Wells Index


Click on a photo to visit our SmugMug page

Front page
Seasonal Content
AP Video
Hyperlocal Search
Premier Guide
Find a business

Walking Fingers
Maps, Menus, Store hours, Coupons, and more...
Premier Guide
Stocks
Parade
Magazine

Click HERE to read all your Parade favorites including Hollywood Wire, Celebrity interviews and photo galleries, Food recipes and cooking tips, Games and lots more.
Must Read