Of budgets, confidence, accountability, control and discipline
The annual budget of the current Bermuda Government was presented yesterday, after this article went to press. I will have commentary on its content next week.
According to biztaxlaw.com, a basic budget is defined as: “a financial document used to project future income and expenses. The budgeting process may be carried out by individuals, companies, or by governments to estimate whether the person/company/government can continue to operate with its projected income and expenses.”
Realistically, or instinctively almost every individual, family, company, partnership, government, charity, and other organisations, uses a budget. There are thousands of variations of budgets, specific for applications in government departmental accounting, corporate financial teams, and individual mindsets.
The budget may be formal, such as a complex formulaic group of numbers inserted into a mountainous set of Excel spreadsheets, or the logistically overwhelming minutia of thousands of paper expense receipts and deposits.
A budget may be as informal as assuring that there is more money in the bank at the end of the month than when the month started. My friend Roger Crombie, a well-known former columnist on personal finance and far more entertaining than me, has used the more-money-in-the-bank at end of month budget successfully all his life. No bookkeeping, or monitoring of expenses required. More is better than less; if the ending balance at month end drops below the beginning balance, he moves directly to an enforced savings month to reverse that decline.
Some families still use a simple series of expense-labelled envelopes, each with its allotted amount of cash to pay certain bills or deposit into savings. This was the way in the old days. Simple is not always outdated, sometimes simple is best.
Why have a budget? Who cares? The money comes in, the money goes out as long as there is enough to meet the bills, no worries. Ah yes, in good times that plan (a pseudo financial plan at best) works like a charm. However, times are not always optimum as many are currently experiencing.
A budget is about setting expectations. It is one of the common denominators in defining the practical elements of your life, each and every day, month, and year. A budget is who you are: a saver, a careful spender, a complete splurger, or somewhere in between. A budget is used financially to project where you want to be, and how you can successfully discipline your consumption to save for that ultimate goal. It can be a source of reference and pride, a statement of anticipation and accomplishment.
If you had the right set of parents who focused your urge to splurge at a very young age in a positive way, you were indeed very fortunate. You will have learned through osmosis and life lessons that managing your money, no matter how small the amount, organises your life, your dreams, your wants and is the absolute key to life long success.
A budget accomplished with savings goals met carries over into your relationships and your career. You become confident in exercising discipline, control and financial accountability.
A budget puts the brakes on the family finances to ensure a cushion in difficult economies. Regrettably, there are individuals and families in our environment today trying to cope with bare bones survival. They have no budget. They cannot plan, they cannot project, or save for the future, they may feel their chance for success slipping further, and further away.
Budget concepts utilised by individuals and their families are equally relevant to private and public companies, partnerships, and governments.
In fact, companies and governments have a significantly higher duty of discipline and accountability. Companies have to answer to their shareholders if the management of corporate finances are perceived to be poorly handled, capital market confidence in the company’s operations will deteriorate.
Governments have to answer to their citizens, rating agencies, and the court of public opinion. Confidence in government decision making process and fiscal austerity, the protection of the public finances for the public good is reflected at the polls.
What matters most, far more than creating a budget, is sticking to those numbers while having the confidence to carry your budget to completion. It means avoiding excess spending above the budget limits, and may demand additional work to raise additional income if the projections on earnings fall short.
We all know this, yet for most people, talking about and preparing a budget, if you can even get to that point, is a very, very large hurdle. Perhaps, it is because a budget also imposes a discipline upon your lifestyle. Those expected numbers, including a savings component sit there, on your lined pad, your spreadsheet, or the fullness (or emptiness) of your expense and savings envelopes. A constant reminder that in order to succeed you have to be accountable to yourself, your family, your shareholders, your constituents and your country.
Unfortunately, our human nature does not lend itself to being discipline. It requires constant reinforcement…and heaven is paved with good intentions.
Professionally managing a budget (and investments) for others (whether a family, corporation or government) means that the individual(s) involved have given their word, quite possibly their word of honour that they will act at the highest level of trust, as a fiduciaries and stewards of the finances entrusted to their care. Their word becomes the credibility that provides the public confidence and trust in the future direction of the company or country.
The opposite of confidence is no confidence. Failure to deliver on a budget indicates an inability to act within fiduciary standards of control, care, and accountability.
But, what everyone wants is to be in personally financially successful in a thriving, transparent, efficient, financially solidly credible international offshore jurisdiction. Bermuda still has great opportunities to become better than we now, to a new eventual prosperity.
It all starts with a proposed realistic budget. It all ends when the people’s confidence is enhanced when the real evidence is in, the budget is balanced, while expectations are exceeded and there is a surplus. The true measure of any government’s proposed budget is the end point, where their ability to manage, conserve, and invest prudently, the people’s money is demonstrably self evident. The budget is in balance, and the final audit opinion is unqualified.
There are literally thousands of budget sites on the Web to choose from. If you truly want to bring discipline to your family finances, I urge you to visit them. It can even be fun. Here are a couple to start with:
A clever interactive, easy-to-use budget website from Australia: https://www.moneysmart.gov.au/managing-my-money/budgeting
From Kiplinger: A Household Budget for today and tomorrow
Martha Myron, JP CPA CFP (US) TEP specialises in independent fee-only cross border investment, tax, estate, and strategic retirement planning services for Bermuda residents with United States and multinational connections, and US citizens living and working abroad. She is a Masters In Law candidate and the American Citizens Abroad Country Contact for Bermuda. www.americansabroad.org For more information, contact mmyron[AT]patterson-partners.com martha.myron[AT]gmail.com or 296 3528 at Patterson Partners Ltd.
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