Could you imagine a business without a budget? Not only would be chaos, but certain bankruptcy. Now, how really different is a business from a family? When it comes to finances, not all that much.
Businesses work within the money in and money out concept. A budget helps them plan for the money they hope to bring in and the expenses they must pay in order to make that money. In a typical business, the money coming in is somewhat volatile. It is based on the customer and their spending. As far as the money going out, this falls into two categories – the fixed expenses like rent, utilities and some salaries, and the more responsive expenses like salesperson commissions, catalogs, and shipping costs. This second category will flux along with the money coming in.
Now, how does this above scenario relate to the common family? Well, a family has money coming in, usually a paycheck. They also have money going out. These expenses can also be fixed or responsive. A good example would be rent as a fixed expense, but gas as a more responsive. If you drive to work, you spend the gas to make the money.
Given the above analogy, you can learn a more business approach to your family’s finances. Use your budget to evaluate the money coming in. Then compare that with your fixed (basic and necessary) expenses. Once you have subtracted your families “overhead” then your next step is to budget the extra.
Part of determining how to spend this extra will depend on your family’s goals. Just like a business will have goals – increase productivity, drive sales, etc – so can a family. Your family’s goals will determine how this volatile portion of your budget will go.
If your family’s goal is to send the kids to college, some of that extra money should go into a college savings account. If your family’s goal is to get fit and healthy, some of that money should go into joining a gym or paying for sports classes. How you plan your budget should reflect your goals, just like a successful business.
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