After he had gained the pinnacle of his success, some one asked Andrew
Carnegie to formulate the secret of wealth. His reply was as significant
as it was laconic. He said: “Pay as you go, and keep books.”
Each part of this formula is important. They are very closely related,
but the second is the more fundamental. However important it is to pay as
one goes, his chances for doing so are rendered very uncertain if he
fails to keep books.
There are different ways, however, of keeping books. Some keep books only
as a means of knowing where they stand with their finances and current
bills. This is good as far as it goes, but it is possible to make the
process of keeping books yield a much greater service.
Others realize this, and keep books as a means of keeping in the right
relation to their financial affairs. They make their bookkeeping system
represent their plan of operation. It then serves to keep them from
getting too near the edge of any financial precipice. If one is to get on,
one of the first principles he must learn is the necessity of keeping
within his income—and a little more. Books can be kept in such a way as to
enable one to do it. This is keeping books according to the budget plan.
Some one is always certain to say that bookkeeping systems and budget
plans are very well for people who have adequate incomes. It is said that
the rich have something to keep books on, but that it is of little use for
those who tread the ragged edges of want to undertake anything of
the kind.
This assumption is a grand mistake. Whatever benefits the budget system
has are certainly common to all who care to adopt it. It is even more
greatly needed by the home with an income below the normal level than by
that with an income above the line of necessity. This is because its
purpose is to enable one to make the most of the amount of money at
command, whatever that sum may be. This service is not needed so much by
those who have an abundance. It is calculated to help most those who must
watch their corners and husband their resources. The budget system is a
desirable plan in the home of wealth; it is a helpful thing in the home
of moderate circumstances; but it is a necessity in the home where takes
place an occasional battle with want.
The budget plan is a sort of blue print of what one proposes to do with
the funds at his command. The builder can do his work properly only with
suitable plans before him. The difference between the structure erected
with a plan and that erected without one is great. The difference between
the results of an income administered according to system and those of one
spent at random is one of just about the same degree. To attempt any work
without a well-formulated plan of procedure means several regrettable
things. It means a waste of materials; it means poor co-ordination of
effort; it means a haphazard and unsatisfactory result.
The budget plan is based on a system of appropriations. Such is the plan
used by all successful business interests. The business is first analyzed
and divided into departments. Then the amount of money needed for the work
of each department is estimated. This amount, or as nearly this amount as
the sum of money at command will permit, is then appropriated to the work
of that department. It is left to keep its accounts up to the total placed
at its disposal. It is, of course, held responsible for the use it makes
of the funds given it. If at the end of the year it is found that the
distribution was not equitable, the proportion can be changed.
The same plan can be adapted to home use, and it will do just as much for
the guidance and welfare of the family treasury as for that of some great
business corporation. The work may be done after about the same fashion.
The needs of the family should be analyzed and divided into departments.
The resources at command may then be estimated and apportioned to the
various departments of expenditure in the same way. Expenses are then to
be kept within the appropriation, and, if the division is found unfair to
any interest, it can be changed.
If this is properly done, the benefits derived will be very great. If
income is always consulted before outgo is determined, the effect of the
system on the family resources will be found to be little less than
magical. The funds in each department will so accumulate as to keep a
surprising balance on hand all the time.
The reason for this certain growth in reserve funds is plain. One will
not purchase a thing in a given department of expense until enough money
has accumulated in that particular department to pay for it. Suppose,
for instance, that one would like to buy a suit of clothes or an article
of furniture. Ordinarily, he would get them if he could command the money
to do so from the total at his disposal. Therefore, he would stand a
chance of paying for it with money which really should have gone to
something else. Moreover, the habit of buying anything he wants and can
pay for keeps his funds down to the low water mark all the time.
When finances are cared for on the budget plan, the case is very
different. Before one purchases a suit of clothes, an article of
furniture, or anything else, he first looks at the page on which the
finances of the department in question are recorded. If the money is on
hand, he proceeds with the purchase. If the funds are insufficient, he
waits until they have increased to a point where the purchase is possible.
This plan accomplishes two things. It keeps personal or family
expenditures within the income from which they must be made. It also
avoids the mistake of spending for one thing the funds which rightfully
belong to something else. These, by the way, are two of the fundamental
principles involved in the matter of getting from a dollar its full worth.
If the family income is fixed and regular, it can be divided arbitrarily
among the different classes of things for which it is to be spent. So much
may be appropriated to one class of things and so much to another. In this
case the division is easy and simple.
However, in many homes the income is not regular as to either time or
amount. In this case it can best be appropriated on a percentage basis.
A certain percentage is set aside for each division of family expense.
It is then credited to the account of the departments involved.
In making this division, a number of things have to be taken into account.
Among them are the size of the income, the needs and tastes of the family,
and the financial condition of the family when the plan is adopted. One
home I know works on the following basis: Religion 10%, Indebtedness 10%,
Savings 10%, Clothing 20%, Groceries and household supplies 30%, Home
furnishings 10%, Miscellaneous Expenses 10%. Each home can choose its own
plan. It can also change its plan at will.
It is well to get a loose-leaf book of suitable size and to have a page
devoted to each division of expenses. The money is kept in one sum in the
bank, but all receipts are credited and all expenditures charged under the
proper headings. Then the bottom figure on each page represents the amount
available for the particular department of expense represented there.
This plan simply provides for system in spending. It serves to balance
expenditures. It also does the best that can be done to provide a reserve
for every need. It helps the well-to-do to greater independence. It
enables the poor to keep from growing poorer, and often enables them to
reach comfortable circumstances. It does not make of a dollar more than a
hundred cents. That is impossible. However, it does enable the owner of a
dollar to get the full value of a hundred cents from it. It is a good way
in which to “pay as you go, and keep books.”