Basic Budgeting Techniques

The following article was written by
my father who is well acquainted
with frugality and budgeting. Even
after having lived through the
Great Depression of the 1930’s,
the rationing of World War II, the
shortages of the post war years, and
the high infl ation period of the 70’s
and 80’s, he and my mother were
always able to manage their money
properly.

Basic Budgeting Techniques
By John R. Lunan

Do you ever stop to think about how
many different things you spend
your money on? If you do, you also
realize that you have many options as
to how, or if, you should spend that
money. Some examples are: Is your
morning coffee brewed at home or
bought at a Café? Do you go to work (or
school or shopping ) by car or do you
use public transportation or a bicycle or
even walk? Do you “brown bag” your
lunch or buy it? If you buy your lunch,
is it at a hamburger stand, in a cafeteria
or an expensive restaurant? For home
heating and cooking, do you use gas
or oil or electricity? Maybe you use
something more exotic for heating like
solar, wood pellets or propane? When
it’s time to get a new vehicle do you buy
or lease? If you buy do you buy new
or used? Or maybe you’ve decided to
not replace it at all. There are so many
alternatives.
Each of these decisions has different
financial consequences - some are
more significant than others. Take
the case of heating fuel. The different
options may require different capital
costs of equipment, fuel delivery and
fuel cost per unit of heat (BTU). With
an accurate record of past costs
you have a baseline for comparing
alternate costs of operation when the
time comes to replace your old stove
or heating equipment. Making the right
decision could result in significant future
savings. Having an established budget
and records will help you to decide
when and how you can finance major
purchases such as these.
No doubt you may also want to keep
in mind ecological, moral, spiritual and
social consequences when choosing
where your resources are spent.
We have budgeted our finances for
50 years now, while raising a family of
four children on a modest income. We
have bought and sold four homes and
renovated a farm house as we moved
from one place to another and then
finally built our retirement home in the
country. Through it all budgeting has
played an important role in planning and
implementing these moves. One of the
most important benefits of budgeting,
especially when funds are tight, is the
ability to avoid financial pain when an
unexpected expenditure pops up. Then
there are other things like an annual
insurance premium, or property taxes
- you knew you would have to pay it
sometime, but you didn’t plan ahead to
have the extra funds available. Instead
you may only have enough for your
regular monthly expenses.

How To Budget
So how do we make a budget, and how
do we stick to it? To answer the latter
first .. by patience, determination and
good planning (budgeting). Making a
budget is simpler if you know where
and when you are now spending your
money. If you don’t know, you can start
by using your best guess, abetted by a
little research of your papers, records,
bills, checks, etc., that you may have
relating to past expenditures. It is also
necessary to know what funds (income)
will be available.
When you have gathered this
information, start to assemble it in
logical order. Keep in mind that this is
the start of a learning curve, as you
gain experience you will no doubt
make changes and corrections.
Using a Budget Planner, computer
spreadsheet, or simply a large sheet
of paper (columnar if available) list
in the left hand margin the months of
the year (or pay periods if you prefer
). Across the top of the sheet name
the different categories of expenses,
one per column, that you expect to
have during the coming periods. You
could also arrange the sheet with the
categories down the left side and the
months across the top - use whichever
method is most comfortable to you. Try
to use group names where practical,
such as UTILITIES (heating fuel,
electricity, telephone, etc.), or CAR
(gas, maintenance, license, insurance )
so that you don’t end up with too many
columns. Next enter your best guess
(budget) for each category on the lines
for each month (or other time period)
you entered in the margin of your
worksheet. Don’t forget to apply the
principles of Freeing Up Cash , shown
in the Premier edition of the Scrooge
Guide, when setting these budget
figures, i.e. anticipate future savings.
To make things easier you can use
separate worksheets to record and tally
the different items included in Group
Categories and carry the totals forward
to the main worksheet.
When all the budget items are on your
worksheet, make totals for each time
period and compare these with your
expected income. Due to the seasonal
nature of a few expenditures you should
find that in some periods you have
planned to spend more than in others.
To compensate for this determine your
annual average per period, (this should
be no more than your monthly income)
then for each time period enter the
positive or negative difference in a new
column of your worksheet. Ensure that
you have enough positives (excess
of income less expense) to cover the
following periods when income is less
than budgeted expense. If this is not
possible then adjust your periodic
planned discretionary expenses or
savings to accomplish it.
To complete the budgeting process you
must record your actual expenditures in
the same categories as the budgeted
items and compare the two each month.
The actual expenditures will provide
you with valuable information about
opportunities for savings and future
budgets.
You can also download a budget
worksheet from the TOOLS section of
the member’s area at:
www.scroogeguide.com. It makes some
of this easier by having lots or pre-set
categories and by doing all the totaling
automatically for you.