Welcome to the Luke1428 budgeting series. It’s a prerequisite for every personal finance blog to talk about budgeting, so here’s my shot at it. I’ll be dealing with many aspects of the budgeting process over the next few weeks, so buckle your money belts and lets figure out how we are going to save, pay some bills, and discretionary spend to our hearts content.
At its basic level a budget is a spending plan. Or if you prefer a cash flow plan designed to give you an idea of how money is circulating through your household on a month-to-month basis. Think of it as how your total monthly income covers your total monthly expenditures. Sounds like a big elephant to tackle I know.
It would be easy to jump straight to the how-tos and what-fors of budgeting but I’m going to go a different route in Part #1 of this series and attempt to answer the sickest question ever devised by mankind. It’s the question every parent LOVES (ha-ha) to hear from his or her inquisitive child.
You got it…the question “Why?”
Why do I need a budget? Simple stated – I believe it’s because we are in a relationship with our money and it naturally has hand.
Money is an inanimate object yet it wields tremendous power. People work, struggle and plot how to have more control over it, only to find they can never gain the upper hand. The inability to control money over time leads to complete frustration to the point that people give up dealing with it.
At that point, it has become a one-sided relationship with money serving as the dictator.
I know…I’m starting off way to serious here. Let’s have some laughs before we move on. Just click the link for 47 seconds of hilarity…
So why does money seemingly have so much control over our lives? Because…
1. It’s really essential for living. I can’t think of a scenario where a person could survive without some form of currency. (Maybe prison? Or a Tom Hanks/Castaway situation?) Even if you are living off the land in a backwoods cabin, supplies will still be needed from time to time and you will have to pay for it somehow. The most remote tribes in the world still have mechanisms with which to barter and trade for their daily needs.
Money is the tool we use to provide for our daily needs. We know we need it and we go to great lengths to get it.
2. It’s finite. I know that money can grow and in that sense it would seem that it is infinite. But at any given point in my life, I only have so much to go around. Because I know I only have so much money to go around, I continually desire to get more of it (so that I can have more of it to go around).
According to the U.S. Census Bureau the median household income from 2007-2011 was $52,762. That’s a fixed number that can only be used for $52,762 worth of stuff. My ability to use what I have is limited.
3. It’s active. Money is continually moving and changing places. What amount comes in my paycheck each month does not all stay with me over the next 30 days. It goes to purchase goods, to buy services, into financial accounts at various institutions and to local charities. Some of it is even paid out to my awesome kids who do work around our house. Once it gets into their hands, it can be passed off again as they buy foam bullets for their Nerf guns, clothing and jewelry, or pizza from the school cafeteria.
Money moves around so quickly. It’s gone before we know it and it’s easy to lose track of where it goes. If someone at the median income was employed at that level for 10 years, they would have $527,620 flowing through their fingers in a decade. That’s a lot of money to not know where it goes!
4. It creates emotion. Money in itself has no emotions but it definitely creates them within us. The emotions that arise over money issues span the gamut and are really powerful. Fear. Greed. Peace. Envy. Pride. Ecstasy. Helplessness. Discouragement. List more…I’m sure you can.
These emotions don’t only impact us. We live them out with each person we come in contact with. Most notably these include our spouse, children, close friends and work associates. Our ability or inability to manage our emotions will lead to the enhancement or breakdown of these relationships.
Money is essential, finite, active and emotional. It holds great influence in our lives. I believe developing a written budget is the #1 financial tool we can use to gain control over it. We have to be able to tell our money what to go do with itself and lessen its grip in our relationship.
Remember what it was like before you used a budget? Share your experiences (horror stories) here.
Next Post: Ranking the Tax Prep Options