Budgeting tips for today’s economy are similar to budgeting tips at other times. However, the state of global economies today will exacerbate the effects of not budgeting or sloppy budgeting.
What is Budgeting
Budgeting is a four-part, on going process. The basic parts one and two are difficult to compute. Part one involves estimating resources needed in a future period to do specific goals. Part two follows with allocating needed resources. The often neglected but key parts three and four are crucial for the process to work well: Compare results with the estimate, and then take remedial action as needed. These two steps are time consuming but must be done to see benefits.
God alone knows the future. Still, you need to let Him guide plans to do what he calls you to do. A well thought out budget will help highlight likely benefits and challenges ahead so you might prepare to deal with them well.
Global Economic Overview
According to the National Bureau of Economic Research, the Great Recession started officially in December 2007. It ended in June 2009. Six years later, world economies are anemic. They are puttering along without signs of a real recovery. Here is an excerpt from the IMF World Economic Outlook 2015:
Several advanced economies and some emerging markets are still dealing with crisis legacies, including persistent negative output gaps and high private or public debt or both.
USA’s Gross Domestic Product (GDP) fell in the first quarter of 2015. It recovered in the second quarter. However, the USA is operating with high public debt, around 100% of GDP, and below potential. Europe is dealing with the effects of Greece’s structural issues, among other difficulties in the Eurozone. China is restructuring and its growth is forecast to slow down. Canada has its problems, too. A stalwart that came through the Great Recession with less ill effects than many advanced countries, Canada, just ended two straight quarters of negative GDP growth. Technically, it is in recession.
Canada seems headed for negative to modest growth for a while. Housing markets in Toronto and Vancouver are hugely inflated. The largest province, Ontario, is mired in debt and the liberals continue its spendthrift ways. Recently, Alberta elected a left of centre government whose first act was to raise taxes and inform the oil industry, the province’s growth engine, to prepare for higher royalties. Clearly, this is a recipe for disaster.
Uncertainty in the business community and falling oil prices provide the perfect platform for decline in Alberta. But more important, the business unfriendly, leftist, Federal New Democratic Party (NDP) is leading in the polls for the upcoming Canadian Federal election, creating even more unknowns for business investment.
Three Keys for Today’s Economy
So, what are some key budgeting tips in these times? Before looking at ten budgeting tips, mull over these three keys. First, ensure your budget presents a real view of opportunities and challenges that might exist later, so you can evaluate likely responses now. Second, realize that global economies are likely to remain soft. When interest rates start creeping up, money will continue to be cheap. You will be tempted to borrow and spend for sales and deals. Third, accept that work that suits you might be limited before economies start to grow. Therefore, it’s essential you evaluate your current situation without bias.
Ten Budgeting tips
That said, let these ten budgeting tips guide you as you budget today:
- Canadian and American household, on average, spends 50% of after-tax income on food, clothing, transport, and housing. Review these areas over the past six months and adjust behaviour to lower future costs.
- For the other 50%, look for behaviour changes, to reduce costs, too. Try to understand your tax situation and decide if you can lower taxes in the spirit of the law.
- If you can’t pay your credit card balance fully each month, either cut it, or let it hibernate in a freezer bag in the freezer for the next year.
- Develop clear, complete, concise, computable goals for the budget period, one year ahead. Identify the discretionary component for each goal, and precise commitment dates. If you plan to go to college, show the date of final commitment, date when fees are due, and precise funding source.
- Develop plans for each goal. Plans should be specific, staged (showing individual steps needed to do the goal), simple, and sensitive to your spouse and family’s circumstances.
- Decide to spend only after using the Affordability Index. Even so, before you commit, ensure you understand the opportunity cost of doing each goal. For example, if you go to college, what won’t you be able to do?
- Be alert to merchant’s seductive advertising through sales, deals, and other sales gimmicks. As well, beware of coupons. Use them as money to pay for needed items. Don’t let them drive your spending.
- Develop a contingency plan that you could use if conditions changed and you needed to adjust behaviour and abandon or suspend certain goals.
- Get an accountability partner to help you stay on track.
- Set up a regular review process to track progress.
Challenging times lie ahead. However, you must be patient, humble, and depend on the Lord to lead you and guide you to his path. Several factors point to North American and European economies bouncing up and down in a narrow band of negative to modest growth. Meanwhile, China will continue growing, but at a lower rate.
Like many people, you might be deep in debt. Maybe you have been borrowing to spend for too long. Perhaps you fear your day of reckoning is here. Then again, you know needed lifestyle changes will be painful. Look for lessons as you journey. Lean on the Lord. Commit to do what’s right. By his grace, you will emerge stronger, wiser, and more contented.
© 2015, Michel A. Bell