Budgeting is Like Eating Worms

By Eric Grant CNW Contributor

Who hasn’t gone through the exercise of making a budget? The process normally starts as a part of a new year’s resolution or some sort of a financial catastrophe and yields pretty much the same results for most of us. The process begins by combing through bills and bank statements, considering entertainment needs, and deciding how much the Christmas budget will be. The result is a well formatted excel document with idealistic goals, that we shove into the top drawer of the desk, followed by a really good effort. Living by a budget is hard, and rarely is it any fun, kind of like eating worms.

If it isn’t a financial catastrophe that inspires the budgeting process, the logical reason for budgeting is so that we can identify and allocate a sufficient level of our cash resources towards our long and short term goals. The exercise of determining how much of your current cash flow towards your goals is pretty easy. You can go to any number of financial websites that will perform present value calculations for your financial goals. These sites will allow you to enter a goal, like a down payment for a new home. It will require you to decide on an amount, a date and an assumed growth or interest rate. These sites can calculate a periodic savings goal to reach the goal in the time frame that you set. Once qualified, this periodic expense should be considered an expense just like any other budget item and should be just as important as the light bill.

Once you have determined the periodic amount that you need to save to achieve your goals, you should start your budgeting process by allocating funds towards your goals, then spend the rest however you would like. Of course, if the remainder of your income does not cover the rest of your living expenses, this has the potential to create that come to Jesus moment, where the ends don’t meet.

Budgets have 2 major components, expenses & revenues. In the budgeting process, the tendency is to give more emphasis to cutting expenses to balance the budget. This is where we take a closer look at the cable bill and consider cutting HBO or turning the heat down and wearing a sweater around the house to reduce the gas bill. The reality of the budgeting process is that

If your budget comes down to the amount you pay for cable TV, you may want to take a closer look at your revenues. Most times, the savings from dumping HBO is solved with some additional income. You might want to consider a side gig, a raise, or a new job. Not to mention, it is never fun to cut expenses and far more fun to make more money.

Creating a budget is the basis off of which we build wealth and achieve our financial goals. Start by breaking your goals down into a monthly or annual savings goal and consider that an expense. Next, determine if your current income or revenue will support your goal expense along with the rest of your expenses. Last, consider both revenue and expense adjustments when implementing a budget. Figuring out how to properly fund your goals is really the only budgeting that you need to do.