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On A Budget Index | Getting Money With Budgeting | Outdated Paradigms

Outdated Paradigms-Budgeting Through the Ages; Taking it to the 21st Century

By, Jane Chidester, the author of
BudgetYes! 21st Century Solutions for Taking Control of Your Money Now!
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This is the next installment in a series of articles about making budgeting a way of life. It's not the torture mechanism we've been trained to think it is, but rather a powerful method of gaining control, planning, communicating, and fulfilling your dreams. At the very least, a budget should allow you to find extra spending money in your paycheck every month!

In the last installment, I discussed the 7 benefits of budgeting. This time, I'll talk about the pros and cons of older budgeting systems, and the minimum features of the budget of the future.


The envelope method. This system has been around for a long time and has been used by many people. The idea behind this method is to use envelopes to divide your pay into categories, with each category targeted toward a specific expense. To use this system, you would obtain a stack of envelopes, and decide what expenses you wanted to budget: for example, car payments, telephone bills, monthly rent, and so on. Then, one envelope would be allocated for each expense, and you would write the amount of the expense on the front of the envelope. Come payday, you would put the appropriate amount in each envelope. The money would then stay in the envelopes until the time came to pay the corresponding bill, at which point the funds would be taken out and used.

The basic ideas behind this system are good ones: money is reserved "up front" for expenses and discipline is enforced in following an established budget. The major problem with this method, of course, is that it was designed for a time when most transactions were handled in cash. People received pay envelopes containing bills and coins, and the folding green stuff exchanged hands for most purchases and payments. In today's world of checks, credit cards, and electronic banking, such a system is a nightmare. You would spend an enormous amount of time making cash withdrawals and deposits. Safety is another concern. Can't you just picture someone breaking into your home to find a collection of delicious, money-filled envelopes to choose from? Even worse is the fact that money sitting around in envelopes isn't working for you. Instead of just laying there, gathering dust, you want those funds out there making more money.

The "wish list" method. This system can be simply described as "good intentions, bad results." The basic scenario here is that a family sits down and agrees on "spending limits" for certain categories of household expenses. "We won't spend any more than $450 a month on groceries" they might say. All of these decisions are carefully documented on paper. That done, the list is carefully filed away, and the family goes out and begins their spending.

The problem here is there is no easy way to enforce the budget plan. When someone takes a trip to the grocery store, they have no idea how much they are "allowed" to spend. Furthermore, rarely do grocery bills come out to exactly $450 a month. If the family spends under that amount, the extra is never seen or heard from again. If they go over budget, where does the extra money come from? Soon, the frustration of not being in control of the situation sets in, and the list is forgotten.

The "list-in-the-pocket" method. This system is an attempt to put some control on the "wish-list" method. Instead of filing the "wish list" away, the family carries it around in pocket, purse, or wallet. Then, every time some money is spent, the amount is deducted from the appropriate category. With this technique, some feedback is available as to how things are going. But still, there are problems. What does the family do if they need gasoline, and there is no money left in the gasoline budget? What if both husband and wife happen to stop at the grocery store while running separate errands? Do they carry separate budget lists? Do they have to spend time reconciling their lists at the end of the day?

Perhaps the biggest annoyance with this type of system is the constant attention it requires. Imagine being at a soda machine, and needing to pull out and make entries on a list before you can deposit a few coins! What a pain.


What are the characteristics of the budget for the future? It should be designed to let you divide and reserve your funds, and remain in control of them, without a lot of extra work. It should allow easy transfer of funds among budgeted items so you won't starve if you happen to run out of grocery money. And it should provide a single reconciliation point so that all family members can use a single budget plan.

The Concept of an Overlay

An overlay allows you to see the way your funds are divided up and reserved for special purposes-it imparts organization to your finances without changing them or the way you handle them.

To illustrate this idea, suppose you were given an aerial photograph of a town that you had never visited, and asked to pick out a few locations of interest: the park at the corner of Elm and Main, or the bank at High and Third. Pretty tough assignment, right? Now, suppose you were handed an overlay printed on celluloid-that clear plastic material used for overhead projector transparencies and animation drawings. A map of the city, with all the streets clearly marked, would be printed on the celluloid. Placing the map on top of the photograph, you could pick out that park and bank with ease! Notice that the photograph itself would not change at all, but your understanding of it would be significantly enhanced with the use of the overlay.

Working Hand-in-hand with your Checking Account

The budget of the future works hand-in-hand with your checking account to provide an overlay of your checking account balance. Normally, when you look at the final line of your checkbook balance, you don't have much of a clue as to what that money is for. How much of it can you spend on groceries? How much do you need to reserve for all your utility bills? The overlay system will give you those details. You will always know the disposition of every penny, all without changing your checkbook, the way you pay bills, or the way you write checks.

Focusing Attention Where Needed

Another idea central to the future of budgeting is that it allows you to focus your attention where it is needed. The daily, routine assaults on your checkbook as you pay monthly bills and take care of mundane expenses can get in the way of truly managing your money and concentrating on financial strategies.

A good analogy here might be to put you in sole charge of a daycare center responsible for 20 active four-year-olds. To add complication, suppose that one child had a special need that day-perhaps she had suddenly become ill and required lots of special attention. Stranded by yourself, this situation would be very difficult to deal with. But what if you could enlist some helpers? Suppose you could call in additional workers to watch the other children while you administered the special care. You could devote your attention where it was needed.

Handling the Routine Aspects of your Finances

The budget of the future can be your helper to handle all the routine aspects of your income and payments, allowing you to concentrate on the important things: investments, savings, financial growth, important purchases, or whatever your priorities are.

A Budget is a Tool, not a Dictator

This means that a budget is something you should use to control your finances. It is not something that should control you!

Read the Next Article: Finding a Budget You'll Stick With; 9 Things to Look For

This article was reprinted by permission of the author, Jane Chidester the author of BudgetYes! 21st Century Solutions for Taking Control of Your Money Now!. Visit her website at Budget Central: Personal Budgeting Information and Resources; Repository of information and resources on personal budgeting, financial planning, and household money management--a complete budgeting education.
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