Money, the art of spending and saving
We need money, as, without it, we cannot feed and look after our family and ourselves. We need it to have a roof, to travel, to buy clothes, shoes, food, books, the essentials, as well as the superfluous, if we are lucky. Budgeting is balancing income and expenditure for all these things. Without a budget we don’t know what our money position is, which may lead to over-spending and bankruptcy. This applies to individuals as well as to countries, although observers of the world of debt may wonder where some countries are going at present.
But let’s confine ourselves to budgeting for domestic business. Money comes in as our income, for most of us as pay or fees for our work, or pension for work we used to do: sometime supplemented by some form of investment, but this applies to the wealthiest among us. So budgeting is the art of anticipating expenditure, and limiting it to what our income permits, perhaps allowing for some credit, bank overdraft or credit card.
We may anticipate larger expenditure, such as buying a car, or a house. In what case we have to plan ahead for a larger money outflow, and if we borrow for such expenditure, plan for repayment which becomes part of our fixed costs for years to come. Fixed costs, such as rent, or mortgage repayment, or school fees, or required insurance, must be budgeted as a priority, as we cannot avoid them. In all these case we must anticipate, save ahead of spending if we can, and budget strictly. The difference between individuals and countries, is that the former have generally very limited credit, while the latter have, unless they sink into unrecoverable debts, access to the so-called capital markets.
Organising one’s life
So managing money, budgeting, requires to anticipate, as much as possible, what our expenditure is going to be, and plan for it. However life has ways to confound the best plan, work accidents, illness, or death of partner or parent, may destroy the best plans. Anticipating such events is part of a prudent approach not just to budgeting, but to life in general. In turn this requires a balance between being over cautious, and laxity.
Life is risk, we cannot predict everything, although we have some certainties: we don’t live forever, children grow up, businesses go bankrupt, taxation is here to stay (!). Insolvency is such a risk, as a result of miscalculation, loss of job, or long illness. Getting out of it is very difficult as creditors are not interested in excuses.
As individuals, the risk of job loss or illness are real, and planning for such extremely difficult: health insurance goes so far and no further, the economy goes up or down, and in the last decades or so, more down than up. Remaining sane and exercising a sound judgement is a challenge by itself: the increase of expenditure, through inflation, the never ending rise in prices, interest rates and uncontrollable world events, wars and so on, is not down to us to manage, we are the victims of events.
As responsible adults how can we mitigate those risks, for the sake of our family and dependents? This is an essential question for most of us. The first step must be to avoid foolish expenditure, on non durable or not sustainable luxury or leisure. Better to plan for more expensive energy and heating next winter than burn money on a cruise!
Our car may be getting old, but can we manage with it for another year or so? Those house repairs may be divided between essentials, for example a leaking roof, and those that can wait a little, such as the new veranda. Travel and holidays are always expensive. The landscapes around us may not be exotic but have we really explored?
Towards a philosophy
We can’t do without money, so let’s manage it at the best of our abilities. Budgeting is not a luxury. We have to consider our context, where we live, our commitments, our assets, and the country’s context, taxation, domestic and foreign policies, economic outlook. All subjects for future posts.
Picture: The Hirschfeld Krater, mid-8th century BC, from the late Geometric period, depicting ekphora, the act of carrying a body to its grave. National Archaeological Museum, Athens. Metropolitan Museum of Art, New York, N.Y. (Accession Number: 14.130.14).
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