SPECIAL PERSONAL FINANCE
Budgeting Means Planning Not to Fail BY MICHAEL MUCKIAN
Illustration by Michael Burmesch.
E
arly in my career I worked for a small nonprofit membership organization whose well-meaning CEO followed a simple budget plan for his organization. If you ended the fiscal year with money left over after expenses were met, he reasoned, then you’ve had a successful year. That might work for lemonade stands, but less so for professional organizations, or so reasoned his board of directors made up largely of financial people. He was replaced and a more stringent regimen put into place. Now, decades later, the organization hasn’t really grown all that much in the number of members it serves, but it now serves them from the first floor of a three-story office building it financed and owns. The same issues affect many of us as individuals. Too many families hold their collective breaths throughout entire months, only to exhale gratefully when they turn the calendar page and realize their money has outlasted the month’s expenses. As satisfied as you may feel when that happens, it’s no way to live unless you don’t plan to live past lemonade season. That’s where personal budgeting comes in. Even if you don’t want to own a three-story office building, you can maximize your resources, no matter how limited, by creating a budget that helps you meet your needs within your means. As Money Guru Dave Ramsey says, “A budget is telling your money where to go instead of wondering where it went.”
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A budget is a plan, a financial roadmap that hopefully will help you reach your personal and economic goals with minimal interruptions. Like any map, a budget is not about perfection, but about education. You implement guidelines and then learn from both your success and failures. Budget standards should be firm, but with enough flexibility to address unexpected financial needs. A sudden medical emergency is something worth bending your budget for; a shiny new Apple watch is not. Preparing for the former expense may give you the skills to budget for the later.
BUDGET TYPES Budget structures are as variable as the individuals or families who create them as long as it meets their economic needs on the way toward future prosperity. One of the simplest budgets is the 50/30/20 percentage breakdown, and really forms a basis for other types as well. In this model, 50 percent of your income goes to foundation expenses, or “needs,” such as housing, transportation, food, energy costs, childcare costs, and other must-haves that will keep your family housed, fed and safe. The second 30 percent covers “wants,” including entertainment, dining out, vacations, leisure activities, and maybe even the aforementioned Apple watch. The final 20 percent goes to savings, investments and satisfying existing debt. Granted, many people and young families struggle with so simplistic a breakdown but keeping the structure and percentage allocations in mind helps you create a functional system that will help put you into a better financial space, which is the goal for any budget.
