7 Things A Budget Isn’t

Preparing and working with a budget terrifies many people. They believe popular myths and misconceptions. They think it will control them. But, when they realize a budge is their best estimates of resources needed to do future goals and plans, their wrong views fade.

These seven things a budget isn’t, cause people to shy away from becoming better stewards, resulting in dire effects:

7 Things A Budget Isn’t
7 Things A Budget Isn’t
  1. A strait jacket, but a freeing tool
  2. About yesterday, but tomorrow
  3. About figures, but goals and plans
  4. Ideal percentages or profiles, but specific situations
  5. Needed only when in debt, but always
  6. About changing your finances, but helping lifestyle choices
  7. A free pass to spend, but a road map of likely effects of decisions

A Budget is not a Strait Jacket, but a Freeing Tool

When events don’t turn out as expected, adjust your behavior to new conditions. Change the estimates when your assumptions are wrong. If you plan to go to college or buy a car in the budget period (next year) and events change so you can’t do either, remove funds from your estimates for these times. You adjust, but remain within your resources. You don’t take on extra debt.

A budget doesn’t control how you spend. Instead, it shows what you might need to do to achieve specific goals and plans. So, in advance, you can see and prepare for actions to take if goals and plans change. 

Not About Yesterday, but Tomorrow
Often, folks tell me they don’t need to budget because they know their spending patterns. Surely, knowing what you did is helpful, but that’s the past. One reason to budget is to learn options and challenges that might exist in the future so you can develop strategies and plans to deal with them.

Another view of the budget is as a tool showing your future plans.

Not About Figures, But Goals and Plans
A budget is not about spreadsheets, software, modules; these are mere aids to help you record and analyze effects of your decisions. You decide where, when, why, and how to spend to achieve specific goals—not the budget. And you decide not to spend—not the estimates you prepared in advance.

Suppose you plan to return to university. You would look at resources, trade-offs, and decisions to do that goal. Most of all, you would examine the opportunity cost of that decision—things you must forego if you go to college.

Not About Ideal Percentages or Profiles
In Canada and the USA, the average household is about 2.5 people. It spends around 50% of income on food, clothing, shelter and transportation. Individual household spending vary according to income, but overall that’s the pattern. But, those numbers are irrelevant to your costs. Don’t aim for them. You are unique. Focus on your goals, plans, and affordability.

Needed Not only in Debt but Always
Another budget view is as a GPS—a road map that reflects behavior needed to take you from where you are to where you plan to be. When you travel to an unfamiliar location without a GPS or equivalent, you will get lost. So too, you will be lost without a budget. In or out of debt, wealthy or poor, good stewardship includes working with a budget.

Won’t change your finances, but Will Help Lifestyle Choices
A budget won’t change your financial condition, but will help you see in advance outcomes of proposed actions. It won’t make you rich, get you out of debt, or force you to save, but it might reduce stress and aid your understanding the effects of your conduct. When you make an estimate and follow it, you understand that the budget is a tool to assist you to carry out wise choices.

Not a Free Pass to Spend, but a Road map of Likely Effects of Decisions
Governments and bureaucrats, skilled at wasting taxes, view budgets as events to waste funds on pet projects. When their fiscal year-end approaches, their main aim is to spend unspent allocated funds even if it means wasteful spending. Private firms do this, too, because of a similar mindset—not wanting to lose earlier allocations. They miss the point of budgeting.

If you plan to buy a suit or a dress and you don’t get them, discard the dollar value from the budget. Further, when you achieve your target, remove the full cost allocation if you spent less. This video explains.

It’s crucial you understand and dispel these seven budget myths and focus on what a budget is—a tool to get you from “here” to “there,” safely. It is a money map; a GPS spending plan. But most of all, it is an estimate of resources needed in a specific future period to do targeted goals and plans.

© Copyright 2014, Michel A. Bell

Michel A. Bell

Michel A. Bell is a former senior business executive, author of six books (including Business Simplified released in 2018), speaker, and adjunct professor of business administration at Briercrest College and Seminary. Michel is a Fellow of the Chartered Certified Accountants (UK), holds a Masters of Science in management degree from Massachusetts Institute of Technology and a Doctor of Business Administration honoris causa from Briercrest College and Seminary. He is founder and president of Managing God's Money.