Myth of the Balanced Household Budget

Photo by  winifredxoxo on Flickr
Photo by winifredxoxo on Flikr

We hear a lot about a “Balanced Budget” or people saying “I wish I could balance my budget”.  They think that a balanced budget is good and that is the myth.  A balanced budget may be good for a government but it’s not good for a household budget.  A household budget needs to be unbalanced and the more unbalanced, the better.

A household budget needs to be unbalanced and the more unbalanced, the better.

Let me explain. For most people who do not have a balanced budget their income is less then they spend each month.  Therefor, they owe more money a the end of the month than they did when the month began.  A balanced budget means the income equals the outgo.  In this scenario you spend exactly what you earn.  You don’t owe anyone any more money at the end of the month because you didn’t spend more than you earn but you also don’t have anything left over.  You didn’t save any money for emergencies, retirement, or for something you might want in the future.  You are broke!

The Preferred Unbalanced Budget

The unbalanced budget i mentioned above leans heavy on having more outgo than income.  The other way around is preferred, more income than outgo.  With this after all bills are paid you have money left over for and emergency fund, retirement savings, and what I call “fun money savings”.  And by the way, that is the order you should be saving.

How to unbalance your budget

Depending on your current situation shifting your budget to a preferred unbalanced budget may be easy or much harder but it is doable.  This may sound overly simple bet there are 3 ways to accomplish this.

  1. Raise your income
  2. Lower expenses
  3. Combination of 1 and 2

That’s it. You either raise your income above your level of expenses, lower your expenses below your level of income, or you raise your income and lower your expenses to a level that works. Raising your income may be difficult to do right away.  Walking into your bosses office and saying “I need a $500 a week raise so I can get my income above my expenses” probably isn’t going to work.  However, if you’re a salesman working on commission it is possible to work a little harder and make more calls and possibly make more sales to raise your income. If you’re a business owner you can possibly raise your prices for your products or services or create new products or expand into new markets.  These are all ways for a business owner to quickly generate additional revenue.

Believe it or not, the easiest option is option 2, lower your expenses.  I know some of you are saying “Roger, you’re out of your mind. That’s not easy”. Well, there are things you can start doing today that will drastically lower you expenses.  For example: eating out.  Let say your go to a fast food restaurant every day for lunch.  lets be very conservative and say you spend $5 each day. That’s $25 a week or $100 a month.  now lets say you pack a lunch using leftovers or other stuff that you have already in your refrigerator.  You just saved $100 a month.  Now let’s look at another way to save a lot of money and I know this works becasue i’ve done it.  We used to have cable and we spent about $150 a month for it. We had service in two rooms, way too many channels, and DVR service. We decided to get rid of cable and go with Netflix and Hulu.  Each of these services cost $8.00 a month.  So we now spend $16.00 a month for TV service where we used to spend $150.00. Now that’s a big savings and we get to watch what we want and don’t feel like we are missing out on anything.  So there are easy ways to lower your expenses.

The most desirable  way to create an un-balanced budget is a combination of both.  Find ways to raise your income and lower your expenses.

It doesn’t matter if you make $10 million a year, if you always spend everything you bring in you will always be broke.

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