“The discussion has to start with a lifetime perspective. What are they really working toward? What are they trying to accomplish?” -John Crane
Let’s face it: Most Americans have an unhealthy relationship with money. Budgeting makes them feel stressed out and hopeless about ever reaching financial wellness, but they keep it all bottled up inside.
Think of it as a silent epidemic of financial stress. So what’s the root cause? And is there a solution? John Crane, the founder of Crane Financial LLC and author of The One-Number Budget, weighed in on this question on the Banking on Digital Growth Podcast.
The Myth of Financial Literacy
The average person isn’t a financial expert. But they’re still expected to navigate complex financial tasks like maintaining their bank accounts, paying bills, seeking loans, evaluating investments, understanding interest rates, battling inflation, and much more.
It can feel overwhelming. And it can certainly feel embarrassing to seek outside help and admit you don't know what you're doing with your money.
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At traditional banks and credit unions, there’s a tendency to blame this situation on a lack of financial literacy. These financial professionals think, “If we just educate our customers more, things will go smoothly for them.”
But is that true?
John is skeptical about the myth of financial literacy. He says the issue comes down to one simple fact for the average person: It's too much work.
It’s not about having enough information. It’s about having enough time.
Failing Your Way Through Traditional Budgeting
Traditional budgets are failing people and many of us don’t even realize it. We take the failure as our own and assume we’re just bad at budgeting.
But John says he wrote his book because he wanted the general public to have another option beyond feeling like constant financial failures. Whether someone reads the book on their own or uses it as a tool while working with a financial counselor, it provides a fresh path to success.
The “One-Number Budget” boils your budget down to a single number.
John developed this idea after watching the baseball movie “Moneyball” numerous times and seeing two of the main characters discussing baseball stats. In baseball, it all comes down to one number where all your energy should be focused. Money is the same way.
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It’s natural for people to focus on a single number in the monthly budget. If you have $5,000 to get your household through the next four weeks, you know all spending has to remain below $5,000.
It’s a simple concept.
Still, the focus on this monthly number is often diluted, and often the problem is found in the traditional budgeting process. There are 30 or 40 individual budget lines to track and it becomes psychologically exhausting.
All it takes is one unexpected line item and the budget fails. If your car breaks down and needs a $500 repair, the budget is blown.
John also points out that in an extremely inflationary environment, as we’ve been experiencing for many months, traditional budgets don’t work at all. A traditional budget doesn’t easily adjust for inflation and you simply can’t stay within a $5,000 monthly budget when your monthly expenses suddenly cost $7,500.
Meanwhile, all the talking heads on TV are making you feel stupid for not having enough savings in your bank account or not making smart enough investments years ago. This advice is totally unhelpful for the average person who’s struggling to pay their monthly bills.
Breaking the Financial Shame Cycle
Financial shame is a real and problematic issue that’s rarely discussed in our society. To understand the scope of the problem, take a look at Tammy Lowly’s TED Talk, “Money Shame: The Silent Killer.”
In the TED talk, we learn that about 20% of all people - or 1 in 5 of the people you know - struggle so much financially that they’re at risk of an early death from stress. Even when they work up the courage to address it, shame from others often pushes them back into silence and inaction.
For many of us, feeling like a financial failure is rooted in deep psychological emotions of not measuring up to our parents’ and peers’ expectations.
These feelings rise to the surface when we visit our local bank or contact a financial advisor and all they do is make us feel dumb. This is one of the major failures of the “financial literacy” movement. It essentially pats people on the head and treats them like stupid kids who just need more instruction from a smarter adult.
John says you can see the evidence of this phenomenon when you work as a financial advisor. People would put off meeting with him until they got their finances sorted out, even though sorting out their finances was John’s role. They were just too afraid of being shamed. To reassure them, he’d say, “Please don’t wait. Just come in. Let’s tackle it together.”
Are Budgeting Apps the Solution?
Many financial industry experts predicted this problem would resolve itself with the rise of fintechs, online banks, and budgeting apps. After all, a user-friendly budgeting tool provides much better insight into your financial picture than trying to keep it all straight in your mind.
However, the problem remains because the underlying psychological issues remain. People still feel stressed about their money and are too embarrassed to seek support when they need it. A budgeting app doesn’t change that. Neither does a visit to your local bank for a brochure about financial literacy.
Instead, it takes a change in mindset. Financial transformation is about opening yourself up to the possibility that there might be a different and better way to accomplish things in your life.
There's a poem in John’s book about being a thief. It captures the idea that a thief isn’t always a bank robber. When it comes to budgeting, each of us can be a thief to ourselves, stealing money away from our futures. Understanding this key concept could do more for your budgeting than anything else.
Youth and the Illusion of Retirement
Economic forecasts show that by the time Gen Z reaches retirement age, it’s unlikely that there will be an actual retirement to enjoy. Even now, many Gen X and Millennial workers feel that they’ll never retire and are planning to work until the day they die.
Statistics show that by age 50, a large percentage of workers will have lost at least one job through no fault of their own. Their career is interrupted and may never fully recover. They may not have a lifetime career that comes with a pension and retirement account to rely on.
Coping with this fact is frightening for younger people and older people alike. This is one of the main reasons why John developed a One-Number Budget that can be used by anyone, at any stage in their lives.
An Overview of One-Number Budgeting
The One-Number Budget reduces a lifetime of money worries to a single figure. Through a simple worksheet, the person makes a calculation to reach a single number they can focus on.
John shares show it works for the average 30 to 40-year-old person.
- Start with your annual income.
- Allocate 20% of your gross income toward long-term wealth building/retirement.
- Look at your taxes and remove what the IRS is going to take away.
- Take what you have left and divide it by 12 to create a monthly number.
- Break out your largest two expenses, which are typically housing plus childcare or housing plus student loans.
- Your remaining number is what’s available for your lifestyle. It’s your one-number budget.
After John does this exercise with someone and reaches their one-number budget, he asks them the following question. “Can you get through four weeks on $X?”
From there, additional planning covers things like saving for specific items. John uses coaching tools to help people reach goals like saving $10,000 or purchasing something that improves their lifestyle. But it all comes back to using the One-Number Budget.
John shares these final takeaways and tips:
- Develop a lifetime perspective and consider your biggest goals in life.
- Budget your money as if you’re going to live a long life, not as if you’re going to die early.
- Proactively factor in taxes because the IRS always gets their money.
- Avoid viewing money in a punitive way that’s based on shame or penalizing yourself.
- To take the first step, compare a savings rate of 20% of your gross income to what you’re saving right now. This provides a point of clarity and insight about your situation.
Connect with John Crane on LinkedIn or contact him at Crane Financial LLC or via onenumberbudget.com. As always, you’re welcome to reach out to James Robert Lay and access more resources about digital transformation at digitalgrowth.com.
This article was originally published on November 30, 2022. All content © 2023 by Digital Growth Institute and may not be reproduced by any means without permission.