If you’ve ever been involved with a company’s financials or been an investor researching a company, you likely know that they all have budgets. In fact, they would have a pretty big problem if they didn’t have budgets. And even with budgets, they still have problems when those budgets are unbalanced at the end of the quarter. An unbalanced budget that is in the red can cause a paper loss of millions (or billions) in stock price. That makes for a lot of unhappy investors (read owners).
Why shouldn’t those same rules apply for your personal finances?
Beating Broke Rule: A budget is a must.
Let’s face it. Only the Government gets away with an unbalanced budget. If you or I were to take up similar fiscal actions, we’d be declaring bankruptcy every year. The bottom line is this; If you want to be fiscally responsible and be in control of your finances, you’ve got to have a budget. And it must balance. Must!
Let me finish by finishing the analogy. Think of your personal finance situation as a “business”. You and your Wife (or partner and any children you may have) are the shareholders. When the “business” does poorly (i.e. runs in the red) the shareholders lose value. Only, instead of being able to sell the stock and find a better performing “business”, you have preferred stock that is non-saleable. What’s more, you’re the CEO, CFO, CIO, and mail room attendant. There is nobody you can fire for poor performance and you can’t trim your labor costs with layoffs.
The only way for your “business” to perform well is to have a budget that balances. If you really want to make your “shareholders” happy, you’ll find a line item in there for savings as well.
Analogies aside, a budget can really help you see where your money goes and helps you get in control of your money. Instead of trying to find a few dollars at the end of the month to pay bills, you might just find a few extra for an ice cream cone or two. If you’re curious how to create a budget, read my article on building a simple budget to learn how we created our first budget.