- By Chris Godfrey, QDooz
Read our questions and answers on the soft skill of budgeting
What does Budgeting mean?
Balancing your expenses with your income to create a financial plan for future activities.
Is there a signal that indicates someone is good at Budgeting?
The most obvious is if they know how to make their salary go the distance. This means they don’t run out of money before their next payday. They stick to a plan, cover their mandatory expenses and keep funds aside for emergencies or non-essential needs and activities. When someone pays off their credit card debt in full, does not use a bank overdraft and meets all their financial obligations each month, you’re seeing the signs of prudent money management.
So, if your Budgeting skills are weak, what does that do?
It typically means you get to the end of the money before you get to the end of the month. This can drive up your debts, force you into expensive credit agreements and severely limit your life development. Being able to budget and make your money work for you and not against you is key to success. Those that fail in this critical area will often find themselves paying large sums in interest charges and fees, being unable to secure important financial features such as a mortgage to buy a home and forever playing catch-up with their debts.
Are there any specific actions to become better at Budgeting?
Firstly, draw up a detailed inventory of your monthly expenses. Put them into a spreadsheet, then add your income. Make sure you include variable expenditures like travel, food, clothes and entertainment. If you don’t know those numbers, make a good guess, usually on the high side for safety. When you see the bottom line, is it negative or positive? If it’s negative, go back to your expenses and look for areas to cut back. Try and give yourself at least a 10% income cushion, that is, 10% of your income is spare each month.
Once you have the plan, stick to it. Resist impulse buys. If something is not in your budget, don’t buy it until you have spare savings to do so. As an incentive, earmark a reward you will buy, such as concert tickets, when you hit a certain target – for example, one whole month’s income has been saved and is spare.
How does Budgeting apply at work?
It’s just a bigger version of what you do with your personal income. Making sure your projects and department or team expenses fall within the agreed budget is essential for planning. Management usually do not like financial surprises. Avoid giving them one by factoring in a contingency of at least 10% to every line item. Obtaining multiple estimates from suppliers for major purchases is essential – and remember that cheapest upfront price is not always cheapest in the long run. Servicing and repair costs can add up.
Does it matter if you go over budget at work?
Just as spending more than you earn is an issue in your private life, so it is at work – except the consequences are usually more destructive. Let me give you a vivid example:
In 1991, construction began in Boston, USA on the world’s most expensive highway project. It was called The Big Dig and the goal was to take the crumbling Interstate 93 that ran through central Boston and sink it underground. The highway would become a giant tunnel under the city. The idea was audacious. Nothing like it had ever been done before. However, despite the enormous engineering challenges, if it could be done, the benefit in traffic relief, reduction in noise and pollution and the efficiency it would bring was estimated to be equally as large.
Typically, things did not go according to plan. The Big Dig was a financial black hole. Scheduled to be complete by 1998 at a cost of $2.8 billion, it was only 95% finished by 2004 – and the cost was a staggering $22 billion. More than 685% beyond the estimate!
The impact of this budgeting disaster was huge. The Boston Globe calculated it will take until 2038 before the cost was paid back, the legal battles alone cost more than $245m in fees and the lead contractor – once an investor’s blue-chip darling - was forced into bankruptcy.
How can anyone reading this reflect on the soft skill of Budgeting?
Do you find it easy to stick to a budget, or is it too easy to be tempted to spend money where you shouldn’t? Have you tried a detailed plan to stay inside your budget? Why did you break the limit? Was it something you could not have foreseen or was it simply an impulse buy? What have you done since then to keep your finances in order?
How about a short reminder? Something you could be put on a button badge.
Yes, this badge is boring - but it was cheap to make.
Is there a peppy quote to demonstrate this soft skill?
“Smart financial planning - such as budgeting, saving for emergencies, and preparing for retirement - can help households enjoy better lives.” Former Head of US Federal Reserve, Ben Bernanke.
Ignite your potential
You can find more articles like this at qdooz.com. QDooz is an innovative toolkit for developing the Soft Skills and Qualities needed to thrive in a changing world of work. With content curated from experienced coaches, mentors and subject matter experts, it’s the perfect tool to help you achieve your goals and face anything life throws at you.
