Do You Spend More Than You Earn?
Awake! correspondent in Canada
“Cut your coat according to your cloth.”—An old English saying
“WITHOUT a budget, life is a tragedy,” states Mike.
“Without the benefit of financial planning, every person and every corporation can soon find that they are in a state of chaos,” Claude explains.
‘But I don’t like the idea of being restricted by a budget,’ you may say. ‘I don’t even like the word “budget!”’ Well, call it financial planning, as Claude does. Or, call it money management, as others do. No matter what you call it, if you are like most people, you must “cut your coat according to your cloth,” that is, spend only what you have. You need a budget.
Personal bankruptcies are on the increase. Rising prices, inflation, high interest rates and other factors all put a strain on your having enough money to cover all your costs. Of course, in less developed countries a weekly or monthly budget might seem like a dream. For millions of people the challenge is to survive one day at a time.
Whatever your situation may be, to feed, clothe, house, heat, provide medical care, transportation, education and entertainment, the funds available have to be controlled somehow for proper distribution. That argues in favor of the value of a budget.
‘But why do I need a budget now when I got along without one before?’ you may ask. Simply put: It is because the purchasing power of your local currency is steadily decreasing. And why is this?
The world’s financial situation bodes nothing good for us as common citizens. Financial tremors are threatening the economy of nations in Africa, Central and South America and East Europe, due to hundreds of billions of dollars of debt.
This world debt has a stalling effect on the economic growth of not only the borrowing nations but also the countries that lent the money. Since virtually the whole world’s money supply is deeply mired in debt, the purchasing power of our local currency is shrinking. No matter where we live, the cry is being heard: ‘We have to get used to living on our incomes, not our fantasies.’ A personal budget can help you to do this.
Mike and Claude, Canadian investment counselors, have shown themselves to be good money managers over the years. They are strong proponents of knowing for sure where one’s money is going.
How to Budget Your Money
‘Will a budget give me more money?’ you want to know. “No, but it will help you to discover where money has been slipping through your fingers, and that will help you to control and make the best use of what you do have to spend,” answers Claude.
‘But, if I had just a little more income I could get along fine and wouldn’t need a budget,’ some claim. That is only wishful thinking. “The world’s largest corporations, with multimillion-dollar incomes, have to budget,” remarks Mike. Besides, a Gallup poll has shown that no matter what the income, people in all the various income groups feel the same—they need just a bit more to make ends meet! Why? Because most people spend more than they have.
Look at it this way: Would you undertake a long auto trip without planning? Would you start to make a garment without knowing whether you had enough of the needed material to finish it? To achieve successfully what is begun, there has to be some forethought and planning. As Jesus Christ long ago said: “If any of you wanted to build a tower, wouldn’t he first sit down and work out the cost of it, to see if he can afford to finish it?”—Luke 14:28, The New Testament in Modern English, J. B. Phillips.
Sit Down and Calculate
Sitting down and working out a budget does not have to be an unpleasant experience. Look at it positively, as Mike does: “A plan for spending.” Claude speaks of it as “cash-flow projection.” A budget is your map for distributing income. With it you find out (1) where your hard-earned funds now go, (2) where they do not need to go and (3) where some, perhaps, ought to be going. You will find that such sensible money management does not really stifle the joy of living. To the contrary, as Mike puts it: “Happiness and contentment can come to a family free from financial worries.” So do not consider yourself a miser—view yourself as a manager of family funds!
After sitting down, where do you start? First, work out your average monthly income. (Most have found that the monthly basis is the easiest to work with.) To do this, you have to add up all the incomes of all wage earners in your family: salaries, interest, tax rebates and other sources of cash to you. Subtract any deductions made for income tax and other purposes. If any of the income is earned weekly, multiply by four and a third. That gives you an approximate monthly figure. Now add them up. That is what you can spend each month—no more!
Next, add up all your recurring bills: rent or mortgage payments, lighting and heating, telephone, and so forth. Since most of these bills come in each month, you can see why there is value in calculating your income on a monthly basis. Remember to include such items as food, beverages, newspapers and other things for which you probably pay cash each week. Now, have you added up everything? What about average expenditure for clothing? trips and vacations? entertainment? home repairs and upkeep? dry cleaning? These are items often overlooked.
There are some bills that come due once a year, such as taxes, automobile license plates and insurance. Divide these by 12 to get a monthly figure. At this point, what total expenses do you have for a month?
The Value to You
Now you are at the point where you can compare the figure for your monthly income with the one for your expenses. What do you see? If you have enough to cover your bills, that is fine. But do not abandon your budget at this point! For one thing, there would be wisdom not only in setting aside needed funds for monthly costs but also in saving for the unforeseen expenses that will come along during the year. Things will wear out or break down. You must wisely allow for such.
‘OK. But what if I find that my income doesn’t cover my expenses?’ you ask. Remember, the purpose of the tower builder in calculating the cost was ‘to see if he could afford it.’ Thus, a budget has the value of helping you to see what you can afford. Learn to be content with the necessary things. The Bible helps us to reason this way by stating: “What did we bring into the world? Nothing! What can we take out of the world? Nothing! So then, if we have food and clothes, that should be enough for us.” (1 Timothy 6:7, 8, Today’s English Version) True, things like food and clothing cannot be cut out, but quite likely costs can be reduced on entertainment, sports or unnecessary luxuries.
But take a look at other expenses. What are you spending on alcoholic beverages? As the Canadian Book of Money points out, “an evening cocktail hour may be costing you $500 a year.” Others watch their paychecks go up in smoke. One person, smoking two packs a day, can spend $400 or more a year on cigarettes. Some have adopted the practice of eating at a restaurant once a week, but that can cost some families a sizable chunk out of a week’s salary. That same meat or seafood delicacy could be purchased for much less and enjoyed at home—with additional savings on gasoline, tips and parking. Could you use another $2,500 or more a year? That is what might be saved in these areas alone. Obviously, there are other ways of cutting back on expenditures. Some are noted in the accompanying chart.
Now, what do you do with the gathered figures? There are various methods of money management that are useful. The one you use will depend on your circumstances and what you find practical.
Some Practical Methods
Cash-envelope method: In this simple system you mark envelopes for each area into which your earnings must go: “Rent,” “Food,” “Gasoline,” “Heating,” and so forth. Using cash, you place in the appropriate envelope the amount needed to cover the expense. Thus, if some earnings are weekly, but payment is monthly, or even yearly, you enclose the cash needed up till that week so as to have the required amount when bill-paying time arrives. Thus, in July you are setting aside some funds for heating bills next winter. That surely takes a lot of anxiety out of paying bills. And remember this: Resist the temptation to “borrow” from an envelope!
Checking method: Essentially, this is the same as the envelope method, except that you deposit your family income in a bank so that the bank becomes your “envelopes,” and writing the checks when the bills are due is the same as taking the money out of the envelopes. The added benefits of the checking system: (a) You may gain interest on your money while it is in the bank, which also may help toward offsetting inflation losses on money value, (b) it is safer than keeping large amounts of cash at home and (c) there is less temptation to “borrow” for other than designated uses.
Why not make budgeting a family matter? When you sit down to calculate the cost, it would be educational for the children to learn more about money value and see how much goes to their upbringing. That will help make them conscious of turning off lights, looking after their clothing, not wasting food—rather common needs in most households these days.
Above all, do not be discouraged if your first budget does not work well or soon gets out of date. Budgets, like schedules of any kind, need updating and adjusting as circumstances change. Make the needed adjustments. Things will improve with experience. You may benefit from considering the chart on the following page.
As summarized in the book Money Management: “Making ends meet does not involve earning more or spending less; it is simply a matter of matching income and expenditure in advance so that life can be more pleasant.” Yes, it is a matter of ‘cutting the coat according to the cloth’ available.
[Box on page 27]
CHECK THESE COST-CUTTING AREAS
It may be that some of the following suggestions do not apply where you live. We are sure, though, that many do. We suggest that readers examine how they can cut costs by using whatever applies to them in the chart and by applying similar principles in areas that may not be covered here.
HOME
Bathroom:
□ Do you take showers instead of tub baths?
□ Do you limit the time in the shower?
Furniture: Instead of new furniture—
□ Do you check out the cost of reupholstering and refinishing?
SHOPPING/FOOD
Clothing and shoes:
□ Do you wait for clearance sales?
□ Can you do repairs, alterations, replacement of linings, zippers?
□ Do you check out garage, yard and secondhand sales for needed household items or toys?
□ What about local auctions that offer items for home?
Groceries and sundries:
□ Do you buy fresh foods in season and do home canning and freezing?
□ Could you plan more one-dish meals, utilizing bargains?
□ Do you buy in quantity at discount prices?
□ Do you compare prices from store to store?
□ Is it more economical to make your own bread, pastries?
□ Could you grow your own food (in own backyard, ‘rent-a-garden,’ allotments or other locations)?
□ Do you curb the tendency to overeat or buy luxury food items?
TRANSPORTATION
□ Is public transit less expensive than gas, repairs, licenses and insurance costs for a car?
□ Is your present vehicle, kept in good running order, less expensive than a new car?
□ Do you plan errands, visiting sick, picking up children, and so forth, to combine for fewer trips?
□ Do you buy oil, antifreeze and windshield-washer fluid in money-saving quantities, adding needed amounts yourself?
□ Do you keep tire pressure at best level for better mileage?
□ Do you avoid motor idling, frequent starts and stops and excessive city use?
□ Do you walk where possible or ride a bicycle for neighborhood errands?
□ Do you limit the length of wintertime car warm-ups?
□ Do you use banking services that regularly pay bills from your account, thus saving unnecessary trips or postage?
UTILITIES
Air conditioner:
□ Really needed in your climate?
□ Are ceiling fans more economical?
□ Only used when really needed?
□ Does it cause waste by making temperature colder in summer than in winter?
Dishwasher/Clothes washer:
□ Handling only recommended capacity?
□ Clothes hung out to dry instead of using dryer?
□ Do you measure the amount of detergent?
Heating system:
□ Keeping temperature low?
□ Turning thermostats down at night?
□ In winter, closing drapes on shady side of house; opening drapes on sunny side? (Reversing this in summer?)
Lights:
□ Are they turned off when not necessary?
□ Smaller wattage bulbs possible? Or are fewer bulbs needed?
Stove or oven:
□ Are menus planned to cook several meals at the same time, thus getting maximum use from oven or burners?
□ Are leftovers stored safely for use again as a meal or a portion of another meal?
Telephones:
□ Used only for essential calls and time limited on calls?
□ Are necessary long-distance calls made during discount hours?
Television:
□ Turned off when no one is viewing?
□ Restricted to selected viewing?
Appliances:
□ Radios, fans not left on needlessly?
□ Could you do most of your home repairs?
□ Water heater at lowest safe temperature? Is it turned off manually or by time clock?
LAST BUT NOT LEAST
□ Do you carefully question the need for new purchases or “bargains” you do not need?
[Picture on page 23]
“Cut your coat according to your cloth.” That is, the size and style of the coat are determined by the amount of cloth available. Thus keep within the limits of your means