Budget

Is a budget EVIL?  Is a budget BORING?  Is a budget CONTROLLING?  While it seems that all of these
concepts are true, they are not completely true.  It is totally your perspective that will determine how you answer
each of the questions.  Part of the goal of this section is to attempt to change your perspective.

Whether you like it or not, nothing is inherently evil or boring or controlling.  A budget is a tool and a lot of
people imagine that for a budget to be effective, it must be one of these things.   So, first we need to change
the perspective.  Let's see if we can make a budget useful instead of dreary.

In order for a budget to be useful, all of the work to create a budget must actually provide direction, information
and assistance.  Here's how you can accomplish this, the direction comes from knowing where you want to go
and encouraging you to take baby steps, the information is the result of seeing how your decisions make the
structure, and assistance comes from the thinking in advance of the decisions that must be made.  


PLAN FOR SPENDING MONEY
Here's the thing, a budget is used by small business, big business, and government.  There are as many
different versions of a budget as there are people that prepare the budget.  Everyone that prepares a budget
will do it for different reasons.  For most business people, the budget is a projection of overall business activity
and an estimate of the revenue, expenses and profit and the level of detail can range from hundreds of pages
to the back of an envelope.  But this is the point, as a person, budgeting is different, less complicated and more
personal.  

Budgets are intended to provide you with an understanding of what happens with your finances but it helps to
define the limits and conditions.  People must live in a real world of income and expenses.  In business and
government, you have an option to increase sales and control costs but as an individual, you have limits in your
ability to dramatically increase your income or reduce your costs.  So, the budget needs to help you to
understand these limits and work within them.

Lots of books will tell you to prepare a budget on a spreadsheet because it becomes easy to update and roll
forward, the problem is that a bunch of stuff on a spreadsheet is difficult to visualize, and that is what is
important to make clear decisions.  While this sounds 'Old School', let's convert the process to paper and pencil
to do the first round.  Here's the process in a nutshell.  Step 1: got down to the office supply store and get a
desk calendar for the whole year with a page dedicated to each page.  Step 2: write down all of the income,
when the money is actually available.  Step 3: write everything down on the calendar based on the day of the
month when it becomes due.  That's the basics, the rest is just math.

The point of a budget is to provide an understanding of the cash flow for an individual, tracking the income and
the expenses.  You have a full year in those calendars so fill in all of the income and all of the known expenses
like rent and car payments and cell phone payments and insurance payments and utility payments, and those
expenses just keep coming.  These are the expenses you can plan on being there constantly and you haven't
gotten into the variable expenses like food and clothing, but those keep coming also.

Now that you know what the income is going to be and you know what the expenses are going to be, we can
figure out if you are up or down.  This is where you get direction for the next steps.


MAKING CHANGES
In order to make changes, you need to understand what needs to be changed.  This is where the math comes
in.  Start with the first week, add all of the incomes together and subtract all of the expenses and then write
down the total.  Hopefully, the total is positive, meaning money is left over.  Now do the same thing for each
week and ending up with a total for each week, to stand on its own.  If a week comes up negative, then you
have a problem, if you break even then you have a starting point and, if you have a positive balance then that
is good.  But it is only the beginning.

The reason for laying out the income and expenses on the calendar is a visual impact.  When you see a list of
expenses, you seldom correlate the list to time frames and matching it to income.  If you want to add more
information, put a subtotal at the end of each day so you can see where you are along the way.  The budget is
a planning tool not a task master.  A budget allows you to see what is coming and what will be offset by future
income, on a day by day basis.  

If you have ever heard the saying: "Living Paycheck to Paycheck" then this gives you an idea of what you are
trying to avoid.  The goal is to not live on a rigid desperation of waiting to run to the bank and cash your check,
the goal is to plan your cash flow so that you have the money when the need arises.  Take another look at the
budget as it is laid out on the calendar, you can see when the income is coming in and the expenses are going
out.  This is the essence of a budget.

There are a couple of truths that you need to carve into stone, having a budget does not make more money
appear magically and it won't reduce your expenses because magic does not really exist.  In order to improve
your financial position, you must make difficult decisions.  These decisions relate to your lifestyle because you
can cut your expenses easier than increasing your income.

Budgets are intended to help you stay in a cash format and not using credit sources.  While credit can provide
the means to have what you want now, that credit comes back to haunt you because, presto, you need more
cash to pay back the credit which cuts into the flow later and makes it worse.


EXPENSES
Life is made up of spending money on lifestyle expenses.  First, the secret, it is not how much you spend it is
how much pleasure you get out of the money you spend.  Next, think through all the expenses that you need in
life.  Generally, there is housing, transportation, communication, eating, clothing and miscellaneous.  Yes, there
are others and these are just big groups but as you work your way through these, then other ideas will pop up.  

Let's go back to the calendar, as you come up with these items, are they listed on your calendar?  If not, make
room for them and see how this changes your money.  

Changing your cash outflow is one of the easiest ways to solve a shortage problem and while it would be
easiest to start with ways to save pennies and work up from there, making a significant change up from
provides more motivation.  Don't assume that you are locking in any of the potential savings, you are simply
considering possible changes.  Where do you spend the most money during the month?  Consider that item
first and consider what changes are possible.  Think about rent payments, is there any way to reduce the rent
expense?  What about a smaller place?  What about a roommate?   Consider every item on the calendar and
see if there are any possible changes that can save you money.  

Savings money is one of those things that everyone takes for granted.  The most often quoted example is the
purchase of a daily Starbucks and how much money you can save by brewing your own coffee.  After that, then
it becomes a matter of packing your lunch instead of buying a lunch every day, the cost can be half that of
eating out at lunch and, it will likely be more nutritional.  Then there are the drawbacks like learning how to
spread peanut butter on a white bread without tearing the bread apart, the jelly is a lot more cooperative.

But food is only the first step, what about making the most of clothes?  Someone recently said "There are sales,
I need to spend some money".  Consider the definition of several words: Need, Want and Desire, these words
do not have the same meaning.  Everyone has desires and some of those can extend years into the future.  
Want seems more immediate and but 'Need' is the critical factor.

CONCLUSION
A budget is not an iron clad program, it is information that will hopefully, allow you to give greater consideration
to each and every purchase.  No purchase is too small and no purchase is locked in.  When you lay out the
needed payments and the associated income, you have an idea of what your finances look like but it is up to
you to bring these to reality.