Sunday, April 10, 2011

A Different Understanding of Budgeting

In the beginning of this year, the CEO of my company announced that every quarter, our small startup of less than 15 people will set aside a budget to partially subsidize an activity for all of us to "bond." In February, a ski trip was planned for this very reason. It took me a long time to decide whether to attend or not, but I ended up not going. The main reason was my discretionary budget. Although the company subsidizes part of the cost of food and stay, I'd still have to pay $25. On top of that, I'd have to pay for lift tickets, equipment rental, and gas. It hardly seemed to be worth it since I would have for sure exceeded the fund.

I was only 1 of 4 people who didn't go on this trip, and was pestered by questions of why I was not attending. Talk about peer pressure! Well, for the most part when I told my co-workers that I couldn't work it into my budget because of the additional cost of lift tickets etc., they readily accepted the answer. But one of the people I gave that response to proceeded to ask me: "Isn't the point of a budget to spend it?" Hmmmmm...I guess I never really thought of it that way, but I must disagree.

To me, a fun budget doesn't obligate me to spend the entire amount. It just tells me what the maximum is so I don't overspend. Yes, the money is there for me to use, but the point of it is to keep better track of cash flow. It's up to me to allocate the fund to maximize my happiness. The goal is not simply to spend $100; it's to spend as little of it as possible without depriving myself too much (there's always a tradeoff, right?). This way, whatever's left over can go into savings.

I know people often use the analogy of dieting with budgeting because they're both seen as being very limiting processes, especially the way I just described it. But really, I set the amount to be $100 because I know I can live well and still meet it. Going on that work trip would have cost me almost the entirety of the fund, and I know I wouldn’t have enjoyed it that much because I don’t ski.

Even though budgeting can feel restrictive, as long as you find the motivation behind it, it's not hard to follow through. Knowing that I’ve done the best to my ability to meet my savings and retirement goals for a secure financial future is enough for me. So whether it's getting out of debt, preparing for retirement, saving to purchase a home, come up with some short and long term goals to really get you pumped up about spending less. Once you get going on budgeting, it's actually kind of addicting to see your bank account grow!


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