Why I Have Never Had a Budget
I have a hard time admitting this but I have never actually had a financial budget, personally or for any of my businesses.
I am not endorsing or recommending my approach to handling finances but, in my experience, I have always struggled to see value in creating a budget, especially when I would just ignore it anyway. My thinking has always been, how do I take advantage of potential opportunities if I am bound by a budget? There is no line item in most budgets for “unexpected opportunity” costs!
Maybe this is just the plight of an entrepreneur – I never know exactly how much it might cost to make a new opportunity work out, or if it does work, how much profit will there be in the end? Without knowing these things how can I budget for them? I have been on church and organizational boards where a budget has been a necessity and a very good thing. I can see the value of this whole process in many situations. But for my endeavors and unconventional approach I just could not seem to make it feel like it was worth it.
Or maybe I am just foolish and a bit crazy.
So you might ask, if you don’t have a budget how do you manage your finances? I have a couple of simple rules and they have worked well for me.
I will not carry any debt that does not produce,or have the potential to produce, income. I use credit cards but do not carry debt on them. Autos or “toys”are not things I want to carry debt on either, because they don’t produce income or appreciate in value. The exception to this was my home mortgage. I have to have a place to live and this is one of the few non-income producing purchases that is highly likely to have the same or increased value over the purchase price when I decide to sell it.
Always be building some form of net worth through a income producing business, rental property or real estate investment. Again the guideline for me has been that these investments have to not only pay their own way, but they need to also provide enough cash to pay my living expenses, mortgage and credit card bill.
In the early years I had to start my first business while I had a day job working for my father’s excavating business. Once the business matured to the point where it could support my living expenses, I quit my day job and started another business. Get the picture? One business would support me until the new business could become profitable. In some cases I had to abandon the idea because it wasn’t working. A few times I got to a place where I could not meet my expenses or pay my credit card balance in full. That was my red warning flag. I needed to spend less, earn more, or sell something. But either way, I benefited. I would build something of value or I would learn a valuable lesson.
This process worked well for me because it forced me to live within my means yet, at the same time, save through the equity I was gaining in my assets. An asset to me is something that produces regular income, pays its own operating expenses, and over time will sell for at least its original purchase price (and, in all likelihood, more). This is how I have intentionally attempted to build lasting wealth. Slow and steady over time.
Is a strict line item budget a wise strategy for you? It may be, but for me and my financial planning, these simple rules have been the most valuable.