Oct. 16, 2012




        This is from a lecture on personal finance that I included in my High School Economics class.  It outlines a budget but more importantly it attempts to develop a philosophy of budgeting.  I have advocated this with students for over twenty years and, even today, I hear from students I had years and years ago about their budgets. It is a concept that, I believe, should be examined by more families.


        There are several problems to personal or family budgeting. The first is that we are naturally reluctant to have our life disturbed by something that limits our freedom of personal choice. The second is also a natural reaction to anything that makes us feel guilty "after the fact".  This is the reason that very few individuals or family's actually have a budget. Oh! they have an idea of what they should spend and how much money they have but they lack a "plan". Sadly, the answer to this is simple and merely requires a change of perspective.


        From the very first, we are taught that a budget will "control" our spending. Suuure it will!!! In reality a budget will only sit there waiting for you to "screw up" and "feel guilty". Why? Because we have always learned that a budget should set spending limits on various areas of our life. The moment we make the budget it is doomed to failure. Maybe, not that month but sooner or later it will fail and we will conveniently allow the idea of a true budget to die a peaceful death. This happens because our concept of a budget is incorrect.  We view a budget as a FORWARD LOOKING plan or set of restrictions. The moment we do this we place limits on ourselves and inherently lay the groundwork for disappointment and guilt.



        The key to a successful budget, over time, is to begin to view it as a BACKWARD LOOKING reflection of our habits.  The budget itself can be as complicated as you choose to make it but I have found the simpler the better. The purpose of the budget is to establish WHAT YOU believe are reasonable expenditures for the given month along with what are necessary expenditures and list them. BUT, you must adopt a philosophy that the budget DOES NOT restrict your spending. Spending is the choice you make at the time of purchase. In short, the budget should go into your desk and not be looked at until the end of the month. Here is an example of a simple budget.


MONTH OF_____________________
















Forgot Birthday Party





Cold spell





Wanted a new I-Phone cover


        Now you notice that there are some questionable expenditures and also some occurances we didn't properly prepare to meet.  This is typical. We all forget something or get overly stimulated by a particular WANT. The difference is that until the month is over we don't worry about the budget. The budget is our ally and is there to help us ADJUST our habits not to CONTROL our spending.


        This budget is then taken out at the end of the month when we face all of our bills.  It allows us to evaluate our spending habits and formulate a new budget for the following month; which will again go "into the desk". Each month we, and our significant other, will pull out the budget and discuss our errors and project a new budget to establish a benchmark to use for the following month's analysis. The PURPOSE of this budget is not to restrict our spending but to aid us in planning and to let us reflect on the types of errors we are making. Over time it allows us to "slowly" adjust our habits and gain control of our finances.


        The concept of this budget is that everyone wants to have thier finances under control but that most of us don't even recognize where we are making irresponsible choices. e.g.: Many people buy a "Starbucks" latte each day. At the end of the month they can't understand how they spent an extra $100 spending money.  This budget system encourages them to identify these expenditures instead of restricting them.  By not restricting the spending it makes the use and adherance to the budget much more palatable to the average wage earner.

 You may note that if you keep this budget in a journal you can compare months and even have a reminder, from last year, of that Birthday you forgot.