Beyond a Budget
A typical budgeting system can be quite similar to a New Year’s resolution in that it can be met with anguish – such as how a new workout regiment or diet can bring about the moans and groans of having to remain disciplined and ultimately tie up valuable time. Traditional budgeting can be very beneficial for managing money effectively but only if you can remain conscious of the ways a budget can disappoint.
Here’s how Investopedia defines a budget:
An estimation of the revenue and expenses over a specified future period of time. A budget can be made for a person, family, group of people, business, government, country, multinational organization or just about anything else that makes and spends money. A budget is a microeconomic concept that shows the tradeoff made when one good is exchanged for another.
Let’s look at just a few of the ways a budget can let you down.
- Inflexibility – Budgets, in general, remain unchanged in relation to the fluctuations of daily life. Salaries, opportunities, and expenses all change either in conjunction or independent of each other requiring constant overhaul to efficiently utilize your money.
- Time & Discipline – Constant attention in formulating a budget requires time. Allocating time and sticking to it requires discipline. These two factors often eventually prevent one from maintaining a continuous budget.
- Lack of Innovation – The vast majority of budgets focus solely on expenses and how to reduce or completely eliminate while more interest should be placed on income. An emphasis on the income side for future growth can be more effective in the long term than scrutinizing expenses.
A More Productive Path
- Set A Goal – Decide what you would like to accomplish with a fixed budget. Clear and concise goals will aid in making the necessary sacrifices for a successful budget.
- Pay Yourself – Trimming 10-15% of your monthly income and allocate it to low risk long term investment vehicles. Also known as your “savings,” this portion of money now has the opportunity to grow more so than sitting stagnant in a traditional bank account. Learn more about the skills for proper risk management and the keys to investing with success at com.
- Pay Expenses – Pay all fixed expenses and overhead such as a home mortgage, car payment, electricity and grocery bills.
- Set up an Emergency Fund – A very important but often overlooked step in the budgeting process is to establish an emergency fund with at least 6 months of living expenses. This is vital to remaining solvent and avoiding the move to charge on credit and be put back in the debt cycle. A small stipend of $25 a week can compound quickly and create your relief fund.
- Live On the Balance – The balance that remains is what should be used to live on and cover variable expenses. If overspending becomes a reoccurrence it may be time to rethink your current employment situation to enhance income.
Dave Ramsey, a well known financial author stresses the following:
“Your biggest wealth-building tool is your income, and the best way to harness the power of your income is the monthly budget.”
As I mentioned previously, and Dave Ramsey’s comment reinforces, the importance of utilizing your current income to formulate a budget will dictate how your future wealth is bill built.
The bottom line on a budget is to manage your money with strict discipline to build future wealth. Money is a very important tool. Beyond the basics, money helps achieve life’s goals. It also assists in grasping some of life’s intangibles such as independence, freedom, and an opportunity to enjoy your skills and talents. A bright and wealthy future begins with proper money management.