Budgeting for Yourself and the Government
As I have started making plans for our budget for the coming year, I’ve thought back to some business accounting courses I’ve had (and taught). There’s one crucial thing you have to remember when you get to your total budget:
THE BUDGET IS ALWAYS BALANCED
If you spend less money than you bring in, then the remainder should go a budget line for savings. If you are spending more money than you make, the remainder either has to come from savings or from new borrowings. If you don’t plan those at part of the budget and realize the consequences, you are merely fooling yourself.
I did a quick search last week for the budget of the US Government. I found this website that has the details and even has a ton of historical spreadsheets that you can download with details of past budget performance. Being the number junkie I am, I naturally downloaded anything I could and I’ve looked through some of it. First, it’s really a misnomer that we have a budget deficit or surplus. A deficit just means we had to borrow more money to operate that year and a surplus means we were able to pay back some of our past borrowing.
The frightening thing is that, according to the data, the actual approved budget has only shown a surplus 3 times in the last 50 years (1960, 1999 & 2000). And don’t get me started on the whole section of the data for “off-budget” dollars. What the heck is that about? Especially considering they have estimates for it going forward. I can understand some new thing not being part of the budget some year, but don’t you know for next year it will be there? Shouldn’t you be actually planning on that going forward? Considering the off-budget portion is about 1/3 of the on-budget (or 1/4 of the total) I think someone should start consider budgeting for that revenue and expense.
Of course, in the end, our government is behaving the way of it’s citizens. After all, it’s citizens that are running the government. We spend and get in debt then raise a stink when the government does the same thing.
Here’s some tips for you to create your own budget at home. We’ve done okay with ours this year in total, but individual categories vary wildly.
- Start by planning for your revenue (or income). I like to be a little pessimistic here. I’m a contractor and not a salaried employee, so I typically plan for me to actually work about 45-46 weeks a year and not a a full 50-52.
- Next, I’ve been using the 60% Budgeting method I described here. I divide my expenses up into Committed Expenses (60%), Long Term Savings/Debt (10%), Retirement (10%), Fun (10%), and Short-Term Savings (10%). It helps me focus on categories of budget rather than the minutia details when it comes to our performance. I can always drill in deeper if something needs to be reviewed, but otherwise just stay at the top level if everything is okay.
- I’ve adjusted my percentages some as we are spending less on retirement and short-term savings in order to spend more for long-term savings (which is strictly debt repayment) at this point.
- Short-term savings, however, is still a very crucial point. Don’t ever leave yourself with a budget that has 100% of your money accounted for. You should always have a “slush-fund” of money you think you might spend, but isn’t allocated to anything. This helps cover emergency car or home repairs that may happen. It should end up in a savings account in the mean time.
From a personal perspective, there is always the question of whether to do your budget as before or after tax. Personally, I like to do mine before taxes so that I can try and pay as little as possible during the year (not getting a large refund later) and plan to pay off debt and put money in savings. Others prefer to have higher taxes withheld and then budget for after taxes, using their return as a bonus to pay off things in a lump sum.
So, make your choice and sharpen your pencils!
