Budgeting: Why You Should Run Your Life Like A Business
Could you get through life without ever making a budget? Absolutely! Many people live out their entire lives without ever trying to build a budget. There are also business owners who attempt to run businesses without any budget planning; however, as a business grows it becomes increasingly difficult for the business to remain in operation without some sort of budget planning.
Running a business requires that you track your business expenses and revenue for tax purposes. Tracking money in and money out gives business owners the data necessary to start building a budget. Businesses can see their profitability directly on their taxes, giving them an idea of how well they are running their business even without any sort of budget planning. Individuals who receive 1099 wages can easily track earnings on their W-2s, however, the IRS does not force individuals to track expenses for tax purposes, which often leads to individuals choosing not to track their spending.
Running a business without a budget is like trying to fly a jet over the Pacific Ocean without knowing how much jet fuel you have
Hitting the throttle and trusting that you will make it from point A to point B can be disastrous. While we typically hear about business success stories, we seldom hear of all of the failures. Unfortunately for those wishing to start a business, it is often unclear how much “jetfuel” (money, capital and time) will be necessary to get the business off the ground and into a state of sustainable profitability. Even with extensive budget planning most new businesses will fail.
Fortunately, unlike starting a new business, it is easier to estimate the amount of money that will be needed to sustain your life into retirement. The difficult part is not estimating this amount you will need, it is creating a plan to reach your goals and executing that plan.
In business, a budget helps maximize profitability in the long run; in life, budgeting helps maximize happiness and security in the long run
While profitability for a business is measured in dollar terms, profitability in life is measured in terms of happiness. Money is simply a means for facilitating trade: with more money we can purchase more goods and services. Making more money (increasing profitability in a business sense), while it might translate into feelings of security and power, does not directly translate into more happiness (life profitability). That’s why your budget planning needs to focus not only on putting away enough money, but also allowing you the time you need to enjoy your life.
It is widely accepted that budgeting and financial planning are important parts of running a successful business. Just like a business owner, if you want to have a successful life (produce as much happiness as possible) you need to have a financial plan and budget to help you ensure that your spending is maximizing your “profitability”.