Corporate budgeting in itself is a complex but widely understood concept. The goal is clear and usually easily defined, if not easily achieved: make more money. For me, the practice of sitting down and working out a corporate budget is standard and non-negotiable. This is business, and in business you sit down and draft a plan. Review your fixed costs, control the variable expenses, mitigate the risks, align the budget with the corporate strategy, and maximize profit. It’s been an interesting shift for me to apply this same formality with the way I budget in my personal life, but a shift that has definitely paid off in helping me to have a better grasp of my personal finances and a more accurate view of how and when I’ll achieve my personal goals.
My fixed costs are often beyond my control: mortgage, home insurance, auto insurance, life insurance, travel costs, etc. They are usually the biggest part of my budget and usually the most necessary and uncompromising.
My variable expenses I have more control over. Things like my Internet and phone expenses provide opportunities to review current plans and research new offers from competing companies. I make it a habit to review this annually (or in some cases, as contracts come to the end of their term) to see where I can get the most for my dollar. I’ve found on occasion that it’s even works out in my interest to cancel a contract and pay the penalty fee in favour of a greater discounted rate from another source. Take a real look at the numbers and see how they balance out.
Highly variable expenses
Highly variable costs of course vary for me by the season, but are often where I slip up in practicing effective management. Movies, concerts, eating out and ordering in can all add up. Wedding gifts were my vice this past summer and Christmas gifts will probably be my vice in the coming winter. And of course, anyone who knows me knows my weakness for online shopping, handbags and shoes. Personal care is also a very important part of my routine, and even though it’s among the first things that women will cut out in the event of a budget crisis, I’d say it’s necessary in presenting yourself and representing your business. Proper grooming is essential and personal image does count.
Mitigating risks has also been an interesting concept to apply to my personal life. My sister and I often joke that in this context, it probably has more to do with people than with market shifts and potential competitors. Bottom line is that every risk should have a contingency plan, no matter how unlikely the risk appears. Do you have a sibling, parent, close friend or family member who is likely to default on their rent payment and ask you for a bail out? Decide whether this is critical personnel that should be subtracted or whether you should establish a contingency fund to cover unexpected expenses. Are you sensing another impending breakup between your best friend and her significant other for the fourth time this month? Build extra time into your schedule for the “you don’t need him anyway” late-night movie marathon and the subsequent “I’m so glad you guys are back together” brunch.
Above all, I make sure that my personal budget aligns with my lifestyle. My budget is realistic for me, and what makes sense for me or for you might not make sense for others. I budget for my yoga classes because that is an essential part of my life. I make sure my budget and my life are tied together by goals that are important to me, whether it’s dealing with acquisitions, personal health, or just enjoying where I am in life. All in all, it’s become my personal strategy for defining where I am and deciding where I’m going.