Budgets are the foundation of a healthy relationship with money, like cough syrup is the foundation for Lil’Wayne’s creativity. Without a budget, knowing your financial direction is akin to walking in a cave blindfolded; a decision to take a step in any direction could be perilous. According to Gallup’s recent annual Economy and Personal Finance survey, only one-third of Americans keep a budget, meaning two thirds of Americans are financially winging it. This is less surprising than an Anthony Weiner dick joke, but in stating that statistic I look both well read and informed. I am sure you agree.
A Budget leads to a Plan
A budget facilitates several important financial activities: it limits spending to certain categories, it provides a benchmark to compare actual spending against, and most importantly it is the pillar of a financial plan. A financial plan extends outward to the future and incorporates the life goals of its architects. So setting a budget really leads to setting a plan—the plan is the context for the budget. If you’re still confused as to what a budget is, I suggest you check out this site: http://www.nick.com/shows/fairly-oddparents/. Probably more your speed.
Does a Plan need a Budget?
If making a budget leads to a plan, does setting a plan require a budget? In most instances the answer is yes due to the spending habits of the average American, which are like Neil Patrick Harris in a Broadway gift shop. Plainly, if you are unaware of your inflows and outflows it will be difficult to plan ahead. The future is only as malleable as we endeavor to make it, and tends to take a random form without our input. So if a financial plan requires a budget, perhaps the real question is, to what degree does one need to keep a budget?
Budgeting Gone Wild
Budgets are like teenagers: they require patience, input, and will procreate if you don’t lock them in their room at night. There are a wider variety of budgeting strategies than there is Hepatitis, each with their own merits. The truth is a budget is really more of an estimate of your expenses over a certain time period; it doesn’t need to be compared against actual spending. For example, if I determine that my expenses are $2,500/month against income of $3,500, and my annual savings goal is $18,000 I am clearly not on track to achieving that goal. I would need to drop my monthly expenses $500 or increase my income $500. Having made a budget, I am aware of that and I know in what areas I may be able to cut. After that analysis, let’s assume I take action and expenses drop to $2,000, so I am on track. If at month end I have $1,500 in savings, do I really need to analyze things further? A budget only needs to be kept if it facilitates achieving the plan it serves, no further.
Saving as Sport
Saving is the reason we are all gathered here today, like alcohol at an AA meeting. What are you saving for? Be specific, this is your plan you are outlining. In the absence of a plan, saving can become “saving as sport”. Someone who saved $30,000 in a year for no particular reason while stressing about their budget is as sad as someone who saved $2,000 and had a blast. Don’t overdo it; if you set a plan and find yourself in a comfortable lifestyle that facilitates it don’t worry about comparing your actual spending to your budget. Just look at the bottom line first: did you meet your savings goals? If you did, then take it from your well informed friend—move on.
 It is possible? I don’t know much about teenagers… or parenting.
What do YOU think about budgeting? Is it necessary? And, do you agree with Mitchell’s analysis? Please share by commenting below…..