“A new poll by Gallup says nearly one in three Americans (32 percent) prepare a “detailed written or computerized household budget” every month. The flip side means that more than two-thirds do not make a budget.” -June 3, 2013
From 2008-2015 I was the Marketing Company President for a Fortune 1000 company. What is a Marketing Company President? Similar to a district or regional director (I was in charge of operations in Idaho, eastern Montana, northern Wyoming and eastern Oregon) but I was a corporate officer so I had lots of items to handle myself instead of pawning them off on corporate.
One of these items was creating a budget for each entity that I oversaw. Nine company stores, six field managers (each field manager had a route of independent businesses that we partnered with), two repair shops and my office staff. That’s 18 budgets that I had to create each year! Budgets had to be completed and sent to corporate by mid-March so I spent most of my Februarys locked in my office, poring over last year’s income and expenses, projecting next year’s income and expenses and visioning what special projects needed to be done in the next year (new building, renovations and repairs, etc).
All of these budgets were then “rolled up” into my master budget. This was what I was telling corporate and our shareholders that my marketing company would generate for the year in income and profit.
Eighteen entities could not be profitably managed without a budget for each. My furthest company store was 660 miles from my office. My furthest independent business partner was more than 1000 miles away! The budget (and the Profit/Loss Statement) were the primary tools I had to see what was working well and what needed to be fixed. I could not just drive there and see what was happening!
If income was low then I needed to trim expenses. If income was high then I could look at funding some wish list projects or rewarding my high performing managers with larger raises. In either case, I needed cold, hard, factual numbers upon which to base my decisions.
Our households are the same. We have income from our jobs (and possibly from investments like dividends and rental properties), and we have expenses. When we spend less than we make, we have surplus money to invest or use for our wish-list. But when we spend more than we make, we have a five-alarm fire on our hands!
I subscribe to different online forums about personal finances and getting out of debt. When someone posts a question for help, my reply to help is almost always the same. Do you have a detailed budget? People will list their credit cards, car loans and rent or mortgage payments, and usually they will include an estimate of their income. But the other expenses (utilities, groceries, daycare, etc) get left out. I understand because of the limited posting space but without the entire situation being visible, good advice cannot be given.
I like to say that a budget exposes everything. It shows what we truly value, not what we say we value. And it shows us where our opportunities are to bring in more money, spend less money, or have a combination of both. This may be a scary thing but it is a good thing!
[An Edward Jones 6/23/14 survey on how Americans spend their time thinking about money found Planning for Vacation as the #1 category]
So as the credit card bills for Christmas purchases begin to arrive in the next few weeks, I strongly encourage you to budget (pun intended!) a couple of hours this month to sit down and create your household budget. I promise that you will discover if you have a nagging debt problem or one that needs serious help, and you may discover your own path to debt freedom.
My next article will review some budgeting tools that are available for free.