No one likes budgeting.
You might have come to appreciate the benefits of budgeting – that it makes your financial world more predictable, it helps get your finances back on track, [insert any of the well known benefits of budgeting]. You’d rather spend time with your family, or play video games, or play with your pets, or hang out with your friends. But we budget because it’s the right thing to do and we learn to love it. When you can’t do what you love, you try to love what you do.
That said, there are three phases in budgeting. The first phase is information collection, where you track how much you spend and begin to understand how much you spend on each category. The second phase is setting your budget and adhering to it. The third phase is one I call proactive budgeting, where you project forward and try to predict when your spending will change and account for that in future budgets.
This was on my mind because of all this talk about rising gas prices, a common topic every Spring, and how it might dampen consumer confidence and spending at stores like Wal-Mart (I listen to the news every morning as I make my coffee and breakfast).
Example of Proactive Budgeting
I just filled up my gas tank at Costco and paid around $3.50 a gallon to fill up 14 gallons. That’s $49 per fuel up, assuming I take it down to the last twenty miles, and a big line item in almost any budget. The last time I fueled up was about 18 days earlier (I work from home, so I drive very little) that so my budget for fuel around $3.30 a day (I just did $49 divided by 15 and rounded up to a nice roundish number). What happens if gas goes to $5 a gallon? My daily budget for gas should increase to $4.66.
Can I afford to shift $1.33 a day from some other category to gas? Yes, and by doing so proactively, I make sure I don’t let it quietly “bleed” away later one when gas prices rise.
Why Does This Matter?
If you have a lot of slack in your budget, adjusting for an extra dollar a day isn’t going to matter. It can bleed away from your savings and you wouldn’t be affected too much. There are, however, many budgets where that single dollar will matter. If you don’t budget and save an extra dollar a day for gas, that $70 gasoline hit is going to hurt. It’s going to stick on your credit card bill and accumulate into greater interest payments. It’ll be death by a thousand tiny cuts.
If you have a budget, it pays to start being proactive.