Is Your Budget Doing Its Job?

By Craig Ford (Staff Writer), on December 18, 2009

Just like a runner must run, I believe those who are financially fit must budget. Your budget might look different than another person’s budget.  Someone might have a complex computer system and another might use a simple pen and paper system.  But, to thrive financially you must have a sense of what you want to spend your money on and what you did spend your money on.

What is a Budget?

Photo by Kristian D. via Flickr

1. It is a form of financial conciseness. It is a tool that helps you start paying attention to where your money is going.
2. It is a proactive spending plan. It is a decision to oversee your money instead of investigating its disappearance.
3. It is a resource utilized to achieve financial goals. It is a map that guides you to a destination that you have decided fulfills your goals.
4. It is a form of accountability. It forces you to account for 100% of your income and expenses.
5. It is a concrete reflection of your true priorities.
6. It is a tool that allows you to answer the following questions:
   • What are you spending your money on?
   • Do you know where your money is going?
   • Is your spending proactive or reactive?
   • Do you spend less than you earn?
   • Are you on track to meet your goals?
   • Do you have a financial plan?
   • Do you know how much you are earning?

Budgeting and the Game of Risk

Did you ever play that popular Parker Brothers game Risk?

Remember that map of the world with countries that were separated by a thin dotted line?  Each player would get a set number of pieces and then they would decide where the pieces should go.  The goal was to strategically place your pieces in both defensive and offensive positions.   As the game progressed, pieces were moved to other areas to help win the game.

In many ways budgeting is the same.

On a regular basis you are given a set number of dollars over which you are the general. The budget represents your game plan.  You game plan should reflect your ultimate financial goals and values. Each time you receive those dollars you allocate them to the proper category. A common misconception about budgeting is that it is about saving.  Budgeting, is in fact, all about spending.  It is about spending the right number of dollars on the right categories.

Three Things a Good Budget Should Accomplish

1. A Good Budget Will Help You Balance Your Spending

Recently I was glancing through a cook book called More-With-Less.  In a section about eating it talks about the dangers of “overeating calories,” “overeating protein,” “overeating processed foods,” and “overeating processed foods.”  Notice a pattern?

There is no problem with each of those items, however, when things are done in excess they become unhealthy. Perhaps the same rules apply to your own budget.  Clothing, entertainment, groceries, and insurance are good.  However, you can over budget for any of those items.  Thus, a good budget produces healthy and balanced spending.

2. A Good Budget Will Help You Spend Less than You Earn

As a general rule, you should make it a priority to live within your means and spend less than you make.  I believe this requires that a budget be on paper and that a calculator be handy.

Take your income and subtract your projected expenses until the calculator congratulates you with a zero reading.  If your numbers fall below zero re-allocate, re-discuss, re-calculate until you are not spending more than you earn. Here are some tips on cutting items out of your budget.

A budget is not a budget if it is not designed to help you spend less than you earn.

3. A Good Budget Helps You Spend Money on Important Purchases

Sometimes money feels more like water.  For a moment it passes through our hands, but regardless of how hard we try we are never able to hold on to it.

The problem might not be over spending, but spending too much on things that we ultimately don’t care about.

Ever hear anyone say, “I don’t know where the money goes.  I guess I just spend it on random stupid stuff”.  The spending is not the issue, but what you are spending money on is not things that ultimately are not valuable to you.  If you are in this situation it is time to start a budget.

Perhaps you could try and write out your budget by category according to the most dollars spent.  Look over the list and see if the things you spend the most money on are the things you wish you spent the most money on.  You can now look over your expenses and know what you are prioritizing for your spending.

For my wife and I, the budget helps us spend in categories that we might otherwise neglect.  In our budget we now add more money to things like entertainment, dates, and dining out because they are priorities to us.

With 2010 around the corner a lot of people will start to budget once again.  Be sure you avoid the ten common budget busters by making your budget functional.  You must also know your own biggest budget busters.  A good budget does not need to be a complex system, just something that works for you and your family.

Do you think budgeting is an important part of a good financial plan?  What makes a budget ‘good’?

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Craig is a fulltime missionary in Papua New Guinea who writes Money Help For Christians and Help Me Travel Cheap, a frugal family travel blog. He is the author of Money Wisdom From Proverbs, has a Masters of Divinity degree, and (most importantly) eats homemade pizza with his family every Friday night.

All posts by Craig Ford (Staff Writer)

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