The Importance of Accountability in a Personal Budget

Many years ago, I was involved in an organization in which I and other volunteers received a weekly allowance to cover various expenses such as transportation and meals.  In one of our meetings, the president of the organization announced that some of the volunteers had come to him and complained that the allowance wasn’t sufficient to cover the expenses (I was not one of them).  He told us that he would consider increasing the amount of the allowance for those who would provide a detailed accounting of their expenses proving a need for a higher allowance.
At our next meeting about a month later, the president said that nobody had presented a list of expenses, so he assumed our allowances must have been sufficient. I could see the embarrassment in the faces of the others in the room.  With the task of keeping track of their expenses, those people probably paid more attention to what they were spending money on and realized that many of those expenses weren’t really necessary. I’ve been to many seminars and seen TV shows about making a personal budget, and while they may offer some good money saving tips and show how to make a fancy budget spreadsheet, I’ve found many of them lacking in the emphasis of accountability.  An ideal spending and saving plan doesn’t provide much of a benefit without the ability to compare actual expenses to budgeted amounts. Without organized financial records in place, people are left wondering, “where did all the money go?”  They might make a guess on how much they spent during the past year on clothing, gasoline, or food; but from personal experience, I know those estimates are usually way off.  By the way, I don’t think having a year-end spending statement from a credit card company counts as being financially organized. The best way to organize personal finances is to use a good computer program (I use QuickBooks, and here’s why) that puts together all of a person’s financial information, including  bank, investment, loan, and credit card accounts.  I began doing this a few years ago, and since then, I’ve been able to solve the riddle of “where all the money goes.”

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    Heber Longhurst, CFA

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    Dustin, thanks for posting this. Accountability is by far one of the most important things in personal finance. I would also add that beyond simply knowing where your money goes it is important to monitor your actual expenses against pre-determined budgeted expenses mid-week and/or everytime you want to make a non-essential expenditure. This way you can see if your little luxury (no need to eliminate them all completely) is doable or if it could reduce your targeted level of savings and/or investment.

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