Budgeting is truly the foundation of our personal finances. It used to be a simple matter of employing a yellow pad or even a small ledger book, but today there are a dizzying number of methods of budgeting. The truth is, however, that it does not have to be as complicated as we make it.
My mother is a 71 year old widow, and is by no means wealthy. She gets by just fine, and I asked her the other day if she had a budget. My mom simply explained that on the first of the month she pays all of her bills. Whatever money she has left over has to last for the month. Oh, if it could be that simple for everyone!
Are We In A Budgeting Crisis?
A Gallup Poll in 2013 concluded that two thirds of Americans do not budget. I was actually somewhat surprised that the number was so high. The bottom line, however, is that it does seem to explain a lot. I think Dave Ramsey nailed it when he coined the phrase 'financial peace.' I don't think most people have any idea how wonderful that feeling of peace really is. Without a budget, most people breathlessly stay just one tiny step ahead of their financial due dates. When the fly by the seat of your pants approach fails, hit the credit cards or take another payday loan.
Curly Had It Right
Do you remember Curly from the movie City Slickers? He was the very intimidating trail boss played by the legendary Jack Palance. Curly's advice was to focus on that 'one thing' (the one thing that was most important). So, if Curly were teaching on budgeting, the one thing would be this - spend less than your income. That is the one thing that any budget or spending plan has to be about.
It All Really Does Begin With A Budget
The truth is pretty simple. People that don't have a budget waste a tremendous amount of money. Some folks earn enough that they can make it just fine without a budget, but there is no doubt that 'budgetless living' is fraught with waste. Dave Ramsey says that if you don't manage your money it will leave you and go to someone else that will manage it. Dave could not be more right.
The reason that a budget is that one thing, and has to continue to be that one thing, is simple. It creates the necessary ingredient you must have for financial success - the financial surplus. The surplus is the fuel of all financial progress. It is what can be directed toward saving, debt reduction, or other goals (vacations, paying cash for that next car, etc...).
Not Having A Budget Is Flying Blind
If you don't have a budget, and a way to monitor it, you will likely end up making poor decisions. These mistakes are simply due to a lack of information. Being out of touch with your true financial picture will result in overspending. I can't tell you how many times people have told me that they got into a car loan, mortgage, boat payment, or other major obligation, believing they could afford it.
I went to see Christian finance author Larry Burkett speak years ago and I will never forget one of his very funny lines. Burkett said that almost none of the couples that came to him over the years for counseling remembered to include clothing as a line item in their budget. He added that none ever showed up naked for their appointment. What a great way of making the point that most people don't really know where their money goes each month. This is why using a smartphone app or a journal to track every penny is an excellent discipline. You may not choose to do that forever, but try it for a week or two and it will be a real eye opener.
The Search For The Perfect Budget System
There are probably as many budget methods as there are diet plans. The truth is that the perfect budget system is whichever one works for you (and you might have to try a few). My mom has a very simple financial life and she can get by just fine with her no nonsense approach. I know that an informal method like this will not work for most.
More Wisdom From My Mother
My mom and I continued our discussion and both speculated about individuals we know that seem to always be struggling financially. In every case, these are people with very good incomes (which is why their situations seem so curious). Mom said, "I am convinced it is not how much your income is, but what you do with your money." She is so right, and there examples all around us of people living well on modest incomes.
Many People Are Looking For A Pie Chart Like This To Base Their Budget On
There Is No One Size Fits All Budget Method
We constantly receive e mails from people wanting us to give them the percentages that they should be spending on various budget categories. I have never provided such a breakdown and never intend to. I really don't think that standardized percentages make any sense. If you are a single person, it is likely that you will spend a greater percentage on entertainment than a family. It is also likely that a family would spend a greater percentage on housing than a single person. None of this really matters as long as you are spending less than you have coming in.
Dave Ramsey On The Envelope System
The Different Methods Of Budgeting
The first major budgeting choice you have to make is high tech or low tech. There are a ton of online and software options for setting up a budget. My recent article listing 7 Free Online Budget Tools is a good guide to some of the most popular online options. I think you simply have to know yourself here and make the right choice. I hear regularly from people that use the old fashioned ledger book approach and do just fine. Some are even still on the envelope system. This approach was made popular by Larry Burkett, and although low tech, highly effective. The old fashioned envelope system even has a new high tech platform.
New Budget Mastery Video Now Available
Bob Yetman and I just finished filming a two hour video titled Budget Mastery. What you will find very unique about this video is that we don't have our own budget system to push! This is why I think it is possibly the best budgeting video you will ever watch. We did a complete review of the most popular budget methods and approaches. We also shared the most popular low tech and high tech options for managing a budget (many of these tools are free). Consider this video your online 'budget fair.' Walk through our virtual convention center of ideas and tools and pick the ones that make sense for you.
Helping you make the most of God's money!