Budget

Last week I mentioned I would focus on solutions. The first place that people start to look for answers financially is usually the budget. The budget is a list of all planned expenses and revenues. The idea is to spend less than what comes in. Sounds simple, but life is not usually that simple.

One reason why a budget can be very effective is that it gets people to understand where the money is going. Many do not know where all their money goes. They know how much comes in from their paychecks, but the expenses continually go out day after day. At the end of the month, more went out that what came in. So, they use credit cards to purchase items, and have to pay in the future with an interest being charged after 30 days. This can be an effective tool to handle unexpected expenses; but after the interest starts, it gets very expensive. Many credit cards will charge 18% or more. Even the low introductory rates of 3.9% or similar, go up to 18-22% after 6 months usually. Always be sure to read the fine print on credit card applications.

Once people do track where their money goes, they can usually identify items purchased that they could probably do without. Unfortunately, the money has been spent and the bills have to be paid. Resourceful people can take lessons from the budget and their expense report to learn new habits and to limit the quick impulse purchases, such as a gourmet cup of coffee or candy bar. Once you curtail these impulse buys, more money is left for bills or savings.

As I mentioned, good habits can be formed like bad habits. If you repeat a good choice repetitively, it can become a habit. This is where the concept of opportunity costs comes in. Opportunity cost is the value of something given up by making a decision. In other words, if I purchase this now, I can not buy something else later on. If you intuitively apply this every time you make a purchase, you will make better purchases and spend less. You will be more aware of what you are spending and the value of other things you may have to give up because of this purchase.

Controlling your expenses is only a first step. Also, it will only deal with the immediate present. A budget will not give you much foresight in what is needed for the future. An emergency fund can help deal with unexpected expenses; but again, it will not cover significant changes in the future. Too often medical bills or layoffs or car repairs, etc. creep in on people unexpectedly that can not be handled by budgets or emergency funds.

When the expenses are cut as much as possible, you have to look at increasing revenue to solve the problem. We will discuss this more this week.

I referred to this before, but it bears repeating. Check out the parable of the minas in Luke 19.

And he called ten of his slaves, and gave them ten ^[a]minas and said to them, 'Do business with this until I come back.' Luke 19:13 (NASB) [a - a mina is equal to about 100 days wages]

If you have any comments or questions, please feel free to email me at the address below.
Email: DeltaInspire@panama-vo.com