At my credit counseling agency, we preach the gospel of keeping a budget.
You may have heard the joke,
Keeping a budget is just going broke according to a schedule.
And it’s funny because it can be true. That’s the beauty of a budget. If you’re going broke, it will tell you by how much. If you’ve got $1,000 saved, and you put together your budget and find you are overspending by $200 a month, you’ll be out of money in five months. In this case, it really is a schedule for going broke.
Your budget will tell you the whole story. If you have financial problems, and you can’t figure out where you’re going wrong, your budget will show you. That’s because numbers will never lie. It’s just income minus expenses. We always advise our clients to keep a budget. That is our gospel, and we preach it loudly.
In reality, a budget is just a simple financial statement common to every single business that ever existed. It’s the same thing a business uses to compute its profit or loss in a month, quarter, year, etc. In business it’s called an income statement or a profit/loss statement. But it’s just income minus expenses. Granted, a person or a family’s income statement will be much simpler than that of a business, but it’s the same idea.
In fact, I advise my clients they think of their household finances from a business standpoint. I’m not telling them to view their family as a business, just to view their finances like a business owner would. The sales a business generates are its income. Just like your wages are your income. And all the expenses associated with operating a business amount to its cost of doing business. For a person or family, it’s the cost of living. The same way a business needs to know where all of its money is going, a person needs to know too. That’s why if you don’t know the cause of your money problems, the budget will show you. The cause is found in the numbers. f
Income minus expenses. You can’t get much simpler than that. And numbers do not lie. I must repeat that line to my clients about twenty times a day.