Our Budget Does not Work
self help article
by Gary Foreman

Prosperity and financial wellbeing self help article:

Mary was puzzled. One month ago she and John had decided that they needed to keep track of their income and expenses if they ever hoped to gain control of their finances.

They had kept their pledge so far. Each week Mary had listed income and expenses by category. But now she just didn't know what to do.

"John. Come here and tell me what you think." Mary's husband ambled into the kitchen clutching the sports section of The Daily Chronicle. "What's up Honey?" He sat down at the table next to her.

"It's this budget. Now that we've got a record of our income and expenses what do we do with it? Some things are over and others are under what we expected to happen.

How do we know if it's OK? What will let us know that we need to revise the plan?" Mary's face reflected her concern.

Yet, she also knew that controlling income and expenses were vital to their financial well-being.

John wasn't any immediate help, either! He gave her an "aw, shucks" kind of look.

But then he suggested they consult the book that they had used to begin all this budgeting stuff.

"Here it is. It says that we need to look at each category and decide why our actual income or expenses were different than what we expected. That makes sense. What's the first problem you got?"

Mary looked at her list. "Well, food was pretty close to what we thought. But transportation is over by about $175.

We said we would spend about $75. When you add up the expenses it's closer to $250! It's those tires that we needed for the van. Now what do we do?"

"Hang on. Let me check it out." John thumbed through their budget guide. "Let's see...it's a one time event that's not going to happen every month.

Yes, we did plan for some auto repair and maintenance each month. Honey, what did we have in the plan each month for car repairs?"

Mary went back to the plan and found that they had estimated about $50 per month. John read further. "If you have planned enough for the year and don't expect to exceed the annual amount you don't need to make any changes.

Just use some of the money from your emergency fund or savings to cover the difference. You'll use the extra money in upcoming months to replenish the emergency fund."

John and Mary decided that $600 for the year still seemed reasonable so they wouldn't make any adjustments.

The next category that Mary wanted to discuss was Medical. "Sweetie, see what it says when you don't spend the expected amount.

Nobody got sick last month so the only medical expense we had was insurance. I'll bet that they want us to put the extra into the emergency fund or savings."

Again John searched out the answer. "Yep! Right you are! We take the extra this month and save it.

It's not really 'found money' that we can just spend on something we'd like. We need to put it in savings for a later month when we run over the monthly average."

While Mary went to the fridge to get a soda, John began to study the income and expense numbers. "Hey, what's this? You've got a negative number in clothes. How did you manage to do that?" Mary shot John a 'gotcha' look.

"OK Smartie. Remember that sweater that Aunt Hattie got you for Christmas. You hated it. Well, I took it back and got a refund. The money I got back is the negative expense that you're so excited about!"

John realized that he was holding a losing hand and quickly changed the subject. "I guess this gas and electric just kind of offset each other. We were under on electric, but the furnace sure has been drinking gas."

Now it was Mary's turn to check the budget book. She found that SAVINGS would receive any “extra” that was planned, but had not been spent, and any OVERSPENDING would come out from the SAVINGS when it was needed.

"Boy, it sure must be hard for a family that doesn't have any savings or emergency fund. I wonder how they make up the difference?" She skimmed through the chapter until she found the appropriate section.

"It suggests that you set up a savings fund as soon as you can. Any amount will help, but that it'll work best if it equals about three months of expenses. Until you have the savings built up you'll need to make up for over expenses by underspending other areas.

It's better to go without and only use credit cards if you absolutely have to. Sounds like it can be tough."

John had found one area that he wanted to discuss. "Honey, I think we need to make an adjustment in Education. That course I signed up for at the college is going to cost about $30 each month until summer.

We really should adjust the plan to show that expense. Then we can recheck and make sure that we're still making more than we're spending."

Mary and John finished their financial review in short order.

They had considered the differences between their plan and what actually had happened.

In cases that were “one time events” they just used savings for the extra or shortage.

In situations that looked like a trend that would continue they adjusted the plan and went back to make sure that the Smith family budget still balanced.

Not that hard. But Mary was in a much better frame of mind than when they started. She knew that the plan was working.

And that was just the reassurance she needed to continue to pursue the goal of financial independence.

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Gary Foreman writes the Dollar Stretcher column. If you have a question or comment for him send email to gary@stretcher.com

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