Sunday, July 09, 2006

Account dollars versus obligations as budgets

Let us look at some of the basic concepts involved in setting up a budget system. We all tend to accumulate an ever expanding set of expenses. To address such obligations we need to have a source of dollars know as income.

Account Dollars
In order to develop a budget, one must have dollars available to expend on goods and services. Such money will reside in entities call Accounts. Obvious examples of such items are checking and savings accounts. Less obvious is the dollars and change that we carry around with us. The total is such funds should be considered as a part of our Cash Account. New dollars flow into our accounts in the form of income from such sources as paychecks, pensions, social security payments, and dividend checks as well as other sources. Money already existing in our accounts as well as continued new dollars flowing into our accounts is typically associated with obligations in the form of expenses. When one looks at the dollars residing in their various accounts, it is very import to determine obligations that may be associated with said funds.

Obligations fall into several different categories such as those listed below:
Past obligations – represent items and services that are acquired in the past but have yet to be paid for. Credit card purchases often fall in this category. You will need to have current money available to pay for or at least make payments toward such obligations.
Current obligations – represent goods and services that you acquire on a today to day basis such as groceries, gasoline, dinner carryouts and so forth. You need dollars available now to be able to meet these obligations.
Ongoing obligations – represent items such as loan payments and recurring services such as utility bills. You need money available month-after-month to be able to meet such obligations.
Future obligations – represent items that you plan on spending money for in the future such as vacations, college tuitions, holiday gifts and so forth. You should have a savings plan that allows you to set aside dollars on a regular basis to allow accumulation of needed funds over time.
Conditional obligations – represent items that you may purchase if and when you attain a certain savings goal such as a new home entertainment system. For such items you also need to be able to accumulate funds over time or at least allow for the making of a payment on a needed term basis to acquire such an item.

The association of available account dollars with expense obligations forms the basis of developing a budget system. A successful budget develops and sustains a harmonious relationship between available account dollars and expense obligations. That is to say, at any given point in time, sufficient dollars reside in accounts to pay currently due expense obligations day-in and day-out.


Post a Comment

<< Home