Photo by: Joop Dorresteijn

Building a Strong Budgeting Foundation

Still Standing

Over the weekend my wife and I had a great conversation with some youth about foundations and roots. We discussed the forces that might be working against a building, or a tree, that might bring them down – and why they would need a foundation (or roots) to withstand those forces.

Our conclusion was that good foundations and good roots need two qualities:

They need to be deep and they need to be strong.

We have many foundations in our lives and our 95% is a big one. It not only “keeps us up” from month to month, but also helps us weather storms and constant change.

The two principles of a good foundation seem to correspond to the two main budgeting principles I try to evangelize here on WithinMeans:

Living Within Your Means Will Make Your 95% Deep

As you use a budget to actively spend less than you earn, your wealth and safety will increase from month to month, a little at a time. Your financial foundation will get deeper and deeper, and you’ll find yourself weathering unexpected costs better.

Budgeting Needs Before Wants Keeps Your 95% Strong

Spending money on what you want, then hoping you have enough for your needs, is a weak foundation at best. If your needs are budgeted first every month you may see some erosion on your wants, but the important things will always have what they need to keep you standing.

How else can you deepen and strengthen  your 95%?

I’ve wanted to post this quote for a while:

Anyone who lives within their means suffers from a lack of imagination.
— Oscar Wilde

Ouch, Oscar… mega ouch.

Using a budget will bring peace of mind.

Inconveniences suck, but they’re better than emergencies. Being stuck in traffic, for example, is worlds better than being in an accident.

Last year our car had some problems with its struts (yuck) and we had to fork over a lot of money to keep it functioning.

Was it a punch in the gut?

Yes… yes it was.

photo by me!

But was it a financial emergency?

Not this time.

Every month we had been adding a little money to our Short Term Savings on our budget. When the situation came, we had enough to cover it.

And if we’d hadn’t had enough in that fund yet, we’d have known exactly where to have taken money from – our least important wants – all organized in our budget. Everything was in order, and we were going to be fine.

Things like this happen to everyone, all the time, and they often come in groups. Unexpected expenses are part of life. Unfortunately, none of us are truly immune.

Expect them and get through them.

This situation had the potential to be more than an inconvenience – it easily could have put us behind on bills or other important needs. But by having a small fund in our budget for “life,” we turned it into an inconvenience. We paid cash, felt sick to our stomachs for a while, and slowly built our short term savings back up.

Make sure your budget has a category for short term savings (you can keep it in a simple savings account if you want) and add a little to it each month. Even if it’s only ten bucks or so, get started!

And when life happens, instead of panicking (or borrowing), brush yourself off, let out a heavy sigh, and start your short term savings over again. Turn your potential emergency into an inconvenience.