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ToggleBudgets for the Family – Example
Who should develop budgets? The short answer is “everyone!” This applies regardless of the entity being considered – individual or organization. For the individual, as for the other types of entities, the budget should be written. Putting your budgeting process into writing creates a measurement tool against which you can monitor your progress and it becomes a checklist to ensure thoroughness in the process. However, the individual may have some flexibility in this regard, but all must be mindful of their resources and the resources required to meet their needs/wants. For any entity the keys to a successful budget are realistic expectations and interpretation of each element of the budget, information used as the basis, and fidelity to the budget plan. Budget developers and implementers must maintain fidelity in prosecution of the budget plan. Information about every facet of the budget elements must be factual to the best of the developer’s ability and must include historical, current, and anticipated operational requirements. The Holy Bible provides some guidance in this activity:
28For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it? Luke 14:28(KJV)5
Budgeting Process for a Complex Organization – Example
Budgets are an organizing method of systematically allocating financial, physical, and human resources toward achievement of strategic goals. It is a detailed statement outlining estimated costs to support the planned or existing entity projects and should include all the Direct Costs and Facilities and Administrative (or overhead) costs required to carry out the entity objectives. The budget is a “roadmap” of the intended path to, and a monitoring tool of progress toward, achievement of entity goals. It helps control spending and prediction of cash flow and profit for a company. Cash flow for the individual person or family is likely the income from a job, and the profit may be interpreted as the savings after all expenditures, necessary or otherwise.
The primary challenge that budgets developers face is mapping out the future, something that can never be done with perfect precision. As has been mentioned before, the budgeting process is information intensive. The historical information and analysis of current and previous operations of current entity/enterprise, or similar ones, is the basic starting point. Translation of starting-point information and current objectives into the future is much more difficult. The budgeting process is iterative and requires constant monitoring and adjustment as conditions change and can include very advanced techniques for large and/or complex organizations.
Why do budgets fail? The short answer is inadequate planning and/or fidelity to the budget plan. The failure of a budget will, in the majority of cases, impact finances to the extent that debt will likely be required to salvage the requirements of the entity. Again, the Holy Bible provides guidance:
25If thou lend money to any of my people that is poor by thee, thou shalt not be to him as an usurer, neither shalt thou lay upon him usury. 26If thou at all take thy neighbour’s raiment to pledge, thou shalt deliver it unto him by that the sun goeth down: 27For that is his covering only, it is his raiment for his skin: wherein shall he sleep? And it shall come to pass , when he crieth unto me, that I will hear; for I am gracious. Exodus 22:25-27 (KJV)5
21The wicked borroweth, and payeth not again: but the righteous sheweth mercy, and giveth. Psalms 37:21 (KJV)5
22A good man leaveth an inheritance to his children’s children: And the wealth of the sinner is laid up for the just. Proverbs 13:22 (KJV)5
20There is treasure to be desired and oil in the dwelling of the wise; But a foolish man spendeth it up. Proverbs 21:20 (KJV)5
7The rich ruleth over the poor, and the borrower is servant to the lender. Proverbs 22:7 (KJV)5
26Be not thou one of them that strike hands, Or of them that are sureties for debts. Proverbs 22:26 (KJV)5
24No man can serve two masters: for either he will hate the one, and love the other; or else he will hold to the one, and despise the other. Ye cannot serve God and mammon. Matthew 6:24 (KJV)5
33But seek ye first the kingdom of God, and his righteousness; and all these things shall be added unto you. Matthew 6:33 (KJV)5
28For which of you, intending to build a tower, sitteth not down first, and counteth the cost, whether he have sufficient to finish it? Luke 14:28 (KJV)5
10He that is faithful in that which is least is faithful also in much: and he that is unjust in the least is unjust also in much. Luke 16:10 (KJV)5
11If therefore ye have not been faithful in the unrighteous mammon, who will commit to your trust the true riches? Luke 16:11 (KJV)5
7Render therefore to all their dues: tribute to whom tribute is due; custom to whom custom; fear to whom fear; honour to whom honour. Romans 13:7 (KJV)5
8Owe no man any thing, but to love one another: for he that loveth another hath fulfilled the law. Romans 13:8 (KJV)5
13There hath no temptation taken you but such as is common to man: but God is faithful, who will not suffer you to be tempted above that ye are able; but will with the temptation also make a way to escape, that ye may be able to bear it. 1 Corinthians 10:13 (KJV)5
6Be careful for nothing; but in every thing by prayer and supplication with thanksgiving let your requests be made known unto God. Philippians 4:6 (KJV)5
8But if any provide not for his own, and specially for those of his own house, he hath denied the faith, and is worse than an infidel. 1Timothy 5:8 (KJV)5
Shakespeare also commented:
“Neither a borrower nor a lender be; for loan oft loses both itself and friend, and borrowing dulls the edge of husbandry.” Hamlet, Act 1, scene 3.
Failures of budgets of individuals were often evident when I worked in the credit department of Sears Roebuck in the 1960s. I worked part time while attending college. Most of those running credit accounts were, by definition, taking advantage of borrowing to meet their needs, or wants, because their budgets, either written or otherwise, did not provide adequate funds. I often refused additional credit because of their apparent lack of ability to repay. I also processed those accounts that were in arrears so badly that it was obvious that the account had to be written off or referred to a collection agency. These situations impacted the account holders in their other financial transactions in a negative way. One can only guess about what process the account holders used to guide their earning and spending decisions.
The United States (US) Government budgets are, increasingly, under constant attack. Those responsible for its care face diverse and complex problems in it development and implementation. The operating and projection environments are changing constantly in complex ways to meet competing demands politically and in substance. It is doubtful that any of the players ever fully understand the substance or consequences of what they are developing and approving for the US and its contributions to the “world stage.” Highly “innovative” ways of meeting budget inadequacies are often devised and defended.
These failures are often announced by news agencies, word of mouth, or various posting methods. Those responsible are, in many cases if not most, responsible to stockholders or other invested interests. Eventually, if deficiencies are not cured, the failures become the subject of legal enactments (i.e., bankruptcy), dissolution, or absorption into other, more viable organizations.
Failures of budgets of many of this type of organization “fly under the radar!” They do not enjoy the same critical scrutiny as those of the above types. And, when deficiencies in the processes and results are noted, various factors prevent the realization from being surfaced. One of the best examples of this is churches.
I am aware of churches that plan for their needs and wants in a very conservative, responsible way. Their budget encompasses the period of time needed to fund their requirements, including major requirements, and “live within their means” while doing it. They obtain the wanted development when adequate funds have accumulated. In some cases – capital improvements, i.e. – it takes many years.
I am aware of churches that take an approach that is liberal in its demands on the church membership. These churches go to the membership for additional personal commitments of funds for both operational and longer-term expenditures. This includes renovation of current facilities and well as for capital improvements: repurpose of existing facilities, improvement of existing facilities, restoring structural characteristics, and for new structure. Some of these requirements require millions of dollars over a short period of time. And the need for funding the activities has been known far in advance. Apparently, the budgets are not very realistic.
Budget planners should be aware of current needs and those wanted or necessary for the future in a timely manner. The budgets, then, should encompass those needs/wants and be satisfied through “living within the church’s means.” The visions for these requirements are often the vision of a small group but are not shared by a large part of the church. These actions place a substantial burden on the membership. The small group of proponents have, in effect, through these commitments, imposed a debt burden on the church membership. Often one project, and additional membership commitment, are not completed before another arises. Projected costs are sometime inadequate and require additional funds. These requirements impact the budgets of the church membership in a way not planned for and, in some cases, not easily adjusted or accommodated.
One must always remember that, in most cases, and especially in churches, the budget being considered is, in reality, a “life-cycle” budget if all costs are considered. When the physical plant is increased the membership is also buying into, for the life of the physical plant, increased budgeting for maintenance and renovation. In the case for churches, membership seems to be decreasing and this places an increasing burden on remaining membership. This can likely result in decreased influence of the church or complete failure.
Church politics, showmanship and peer pressure are used to “encourage” participation. In my opinion churches using this form of management are being grossly mismanaged to the detriment of the majority of membership. This is done due to either incompetence or purposeful manipulation of the membership. There are accounting techniques that address these situations in a more objective way – Sinking Funds and Reserve Funds.
The Sinking Fund is created for a specific purpose or known future liability such as capital improvements or long-term debt. The Reserve Fund is created for general purposes evolving from unseen operational financial needs. Both of these funds are funded from the operating revenue stream – donations or other dependable sources. The funds can be invested to create revenue rather than additional debt resulting from servicing debt. Debt servicing fees can become a major expense and charge against the budget of the individual, church, or other entity.
Now, viewing scripture from the book of Matthew, chapter 6:1-4:
1 Take heed that ye do not your alms before men, to be seen of them: otherwise ye have no reward of your Father which is in heaven. Matthew 6:1 (KJV)
2 Therefore when thou doest thine alms, do not sound a trumpet before thee, as the hypocrites do in the synagogues and in the streets, that they may have glory of men. Verily I say unto you, They have their reward. Matthew 6:2 (KJV)
3 But when thou doest alms, let not thy left hand know what thy right hand doeth: Matthew 6:3 (KJV)
4 That thine alms may be in secret: and thy Father which seeth in secret himself shall reward thee openly. Matthew 6:4 (KJV)
This instruction is certainly in contrast to the politics, peer pressure, and showmanship used to compel participation in funding campaigns of some churches. I have heard of campaigns where select individuals were strongly encouraged or compelled to make the magnitude of their contributions and involvement open to various levels of church body scrutiny. This, I believe, among other aspects of this type of campaign, is wrong. I believe each individual is competent to make their own support decisions without pressure from those with Competing goals and wishes.