When you hear the word budget, what comes to mind?
Icky. No thank you.
These days, the term BUDGET often has many negative connotations. It implies that you first must know how much you are spending in a given month and then you need to develop a plan to decrease that spending. At a prior employer, we spent a great deal of time trying to disguise the word “budget” and put friendlier alternatives in its place: cash flow management or financial independence analysis. Whatever you want to call it, let's challenge the traditional way of how you view a budget.
A budget is not intrinsically evil. It is a means to formalize your spending patterns and craft financial goals. Since life is not static, those goals will change over time. Recognize that your financial goals should also be tied to life priorities. Below is a mini-chronicle of my budget as an adult and how it has shifted, based on new life circumstances.
As a new college grad, my budget was pretty basic and separated into three main categories: fixed expenses (e.g. rent, utilities, insurance), variable expenses (food, clothes, entertainment), and savings (to fund a down-payment on a home). Living in the Midwest and earning a strong salary as a newly minted accountant, there was plenty of wiggle room in the budget for fun expenses like entertainment and recreation. By the time my husband Bryan and I married, we owned a nice “starter home” and had combined financial resources to create an even bigger cushion. Budget categories remained the same but extra funds went into savings – for a down-payment on a larger home in the burbs.
I still use the same budget format from Microsoft Excel that I developed over 10 years ago, yet there are so many more line items in each category now. With the addition of each child, we had a “budget overhaul”. When our first son was born in 2009, returning to work was a certainty; even with a reduced workload and full-time childcare expenses, saving was relatively easy. With the arrival of our second son in early 2013, I was unsure about returning to paid work since my husband was working full-time in a professional role and attending a demanding evening MBA program. We must have reviewed our budget at least 100 times to see if we could live solely on my husband’s income. Seriously. I reluctantly went back to work after baby #2 but only stayed about 8 months. It was simply too much to handle … 40 minute commute each way and little support from Bryan in the evenings while he attended school.
This was a HUGE change for our family, so things quickly went from financially comfortable to awkward, especially after our third son came along in 2015. Categories like clothing and entertainment that were selfish indulgences before kids were now exclusively focused on our boys. We actively sought out any activities for low or no cost that we could enjoy as a family. The vacation budget amount from 2005 was the same as 2015, but we had to make accommodations for a family of 5 rather than 2. There was little to no wiggle room in this new budget and that made my husband and me very uncomfortable.
To alleviate some of this financial stress, I started an accounting practice in 2014. Financial projections for the business are critical to merge into our family budget. Without a budget, we could not make informed decisions about these key life changes. I am proud to say that since I quit my secure, steady position in 2013, we have not gone into any credit card debt nor dipped into any savings accounts. So, thank you, Mr. Budget!
Do you see how a simple change of perspective can make the budget go from foe to friend? Read the next few blog posts to learn about different types of budgets and tweaking your budget to fit changing life circumstances.
Deb Meyer, CPA, CFP®