There is a trap out there, that it is all too easy for even the most motivated, self starting individual to fall in to without a little pre-planning.
The most successful business in the world, be it a small home operation or a Fortune 500 company lives or dies by its income. But without careful monitoring, the line between what is your money and what goes back into your business to keep it operational can easily become blurred, making your piece of the pie even smaller, or even taking it away entirely. It should be obvious why you would want to avoid that.
That’s why careful budgeting is so important. Don’t run yourself too close to the edge – that’s a recipe for constant stress, making it impossible for you to enjoy yourself. As the saying goes, everything costs more and takes longer. By ensuring that you anticipate cost overruns, you’ll find yourself prepared for it when they occur. The most effective method of doing so is to maintain – and frequently increase – an emergency fund as a standard line item in your budget. When times are good, you should be setting aside money for when they’re not. This is so important that you should consider it a priority and pay yourself first. But it’s not always
easy to do that; the demands on your money and time are going to be frequent, and it’s natural for you to want to spend money as soon as you have it. Psychology matters a great deal here; you have to know yourself. Some people simply have trouble setting aside extra money.
If you are one of those people, then one method to assist in your preparation is as simple as using the tried and tested mathematical technique of rounding up. For example: let’s say one of your expenses costs you $172 per month. In your budget, round that up to $200. Another costs you $1850 per month; round it up to $2000. By using this technique you are essentially creating a back-up fund should one of the many surprise expenses that can pop up out of nowhere rear its ugly head. This practice will, in effect, give you the same kind of cushion that a traditional emergency fund would, but because you’re budgeting the money for various expenses, psychologically you’ll see it as spent – which will prevent you from spending it elsewhere by leaving you mentally convinced that the funds are gone.
Of course, those funds will “reappear” when you balance your budget at the end of the month; that’ll leave you with the extra you need to deal with anything unexpected that came up over the course of the previous month, and give you the chance to start a genuine emergency fund of your own with the excess, bringing you closer to managing a solid budget every month without the need to resort to padding. In the meantime, maintaining a careful budget incorporating a modest amount of over-budgeting will help keep your business safe and secure, and ensure that your money stays your money. Making a budget and sticking to it stringently is one of the smartest moves you can make.
