Changing the Reputation of the Budget

The budget has gotten a bad reputation. Some feel saying, "It's not in the budget," means they can't afford it. Most people really don't like to admit they can't afford something, so they think if you are on a budget, it means you don't make a lot of money and can't afford stuff. This couldn't be further from the truth! Being on a budget just means you want to keep track of what is going out (expenditures or outflows) and what is coming in (income or inflows). It means that you are wanting to control your money, and not wanting to let your money control YOU. Sure, it might mean that you don't have the necessary amount of cash available at the time to make a big purchase, but this is different than not being able to afford it. Let me explain.

Having a Budget vs. Not Having a Budget

Frank wants to buy a new refrigerator for $1499 plus tax ($1588.94 with a 6% sales tax). But Frank doesn't have a budget. In fact, he has about $457 left to his name. But, he wants a new refrigerator, and he wants it NOW. Frank makes a net pay of around $3000 a month, but his bills total to around $2875. Again, Frank doesn't have a budget so he doesn't know what it means to overspend in categories, but he does it every month. His actual monthly obligations are $2875, but he spends closer to $3200, and uses his credit card when he doesn't have the cash available, which makes not only his debt higher, but also his monthly obligations. The one thing Frank has going for him is his credit score. He always makes his payments on time (sometimes this isn't the easiest thing), so his credit is outstanding. So, of course he wants to finance his refrigerator! Frank gets approved for the full amount, and learns he has 6 months no interest. He thinks to himself, "Sure, I can pay this of in 6 months." Of course, Frank doesn't pay it off in 6 months, so now his monthly obligations are higher, and his interest rate is above 20% for his credit card, and he ends up paying much more than he should for his fridge. He couldn't pay it off without paying interest because he has no idea what is coming in and going out. He thought he was doing fine until he found out he couldn't get the extra to pay the debt off in the no-interest period. It will be several months now until Frank can pay off his refrigerator. Had Frank had a budget set up, he would've realized he was overspending and didn't have the extra to put toward buying a fridge. He could afford the minimum payment, sure, but he couldn't really afford the fridge because he didn't have control over his expenses.

Now, meet Bob. Bob wants to buy the same exact model fridge as Frank, totaling to $1588.94 after tax. Bob also makes a net pay of $3000, but he has a strict budget, so his expenses every month are around $2200. He's been saving to put a down payment on a house, but would like to stop saving for few months to be able to buy the fridge, so he finds out the price, figures out what he needs to do, and saves $800 for two months, totaling $1600, and he goes and buys the fridge outright with money left over. No monthly minimum payments, no new debt, and his expenses are still $2200. The next month Bob continues to save for a down payment on his house. Now, Bob's fridge wasn't an emergency, so he didn't take it out of his emergency fund. It also wasn't part of his house down payment, so he didn't take any from that account either. He knew what he wanted and adjusted his budget accordingly.

Now That Was Easy, Right?

No, budgeting for beginners isn't that easy. It doesn't just happen that you have all of that extra money to be able to save for something like that. In the example, Bob was a seasoned budgeter. He had been living with his budget for quite some time, so he knew what he didn't have the money right then and there. It didn't mean he couldn't afford it. He very well could afford it; he just didn't have the full amount to spend right then and there, so he made it so he did.

When you begin to budget, your budget will not be perfect. You might end up finding out you spend more than you earn. And that is OK. You might find you that you overspend in several categories. And that is OK. You will learn to adjust when that happens. Even seasoned budgeters can overspend. It doesn't mean that you failed, it just means that you have to just go with things when they happen and adjust.

My goal is to change the reputation of the budget. No longer do I want people to cringe when they hear the word "budget." I also don't want anyone to judge another person for saying, "That's not in the budget." Having a budget doesn't always mean you can't afford it - sometimes it will, and sometimes it won't. It just means you are wanting to take control of your finances so you are learning to live within your means. I congratulate you on taking the first step toward financial freedom!