The 4 W’s of Budgeting

The Place to Start When Considering a Budget


Recently I have been asked multiple times about how I do my business budgeting. This question has come up multiple times over the last several years. Based on the number of times, it must need some discussion.

Budgeting has rarely been a very popular subject. Most people view it as restrictive, confusing or just too much work. It’s even more complicated when you’re self-employed and don’t have a constant or regular income. Before you can budget effectively you need to answer some questions.

The first question to answer is WHY do you want to bother with a budget? This could be because it’s just one of the things that the business world talks about, so it must be the right thing to do. It could be because you are tired of not knowing where your money is going. It might be that you feel out of control. Whatever the reason, this needs to be the first question to answer, because it will affect how you answer the remaining questions.

The next question is WHAT difference is a budget going to make? Before budgeting I would deposit a check and Debby would pay bills. Later I would be surprised when there was less in the account than I expected. After writing the numbers down and doing the math I could see exactly where the money had gone. Before it was written down it would be abstract and estimated. It was amazing how much difference it made seeing it written down. If your happy with your current money situation and can account for where it all goes, then you don’t need to bother with a budget.

6736189489_451af024b0_oIf you don’t like where you currently are then it’s time to sharpen your pencil and get ready to answer the next questions. WHERE do you want to be? This will be different for everybody, but it needs to be answered. Do you want to have money put back for your retirement? Do you want to be out of debt so that you aren’t feeling the pressure that comes with owing money to someone? Maybe you are just tired of your life being out of control and living paycheck to paycheck. Whatever the answer to this question, once you’ve answered it, you then have a destination. If you don’t have a map how will you ever be able to get there?

Next is WHEN will I get there? Once you have determined why it makes a difference and where you want to go, it’s time to figure out how long it’s going to take. This comes down to doing some simple math. Depending on what your end target is, it may seem overwhelming. The thing to remember is that if you don’t start you sure won’t get there. This is why some way of tracking progress is helpful. It can give the process a sense of reality rather than just being a fantasy. Dave Ramsey refers to Aesop’s Fable, the “Tortoise and the Hare” in his Financial Peace University course. We live in a high speed want it now world. We need to remember that slow and steady wins the race and not be discouraged if in the beginning it looks overwhelming.

After years of working through these issues I have come up with a system that works for me. It is an accumulation of different thoughts, ideas and plans from a variety of different people and places. In a future post I will break down and share HOW I budget and track my finances. So until then, answer the questions above so you will be ready to move forward and get control of your money and your life.

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