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The Benefits of Being a Pessimistic Budgeter

Posted January 8, 2021 by EasyFinance.com to Finance 0 0

Accountancy and bookkeeping are not exciting jobs, and it is easy to think of a budgeter slumped over a desk looking depressed. But that is not what being a pessimistic budgeter is all about. Being a pessimistic budgeter means always assuming the worst so that the worst-case scenario is already planned for. That way, when things go right (or normally), then it comes as a pleasant surprise.

Optimists Are Terrible At Budgeting

Any sort of income or outgoing prediction needs to be gloomy. It needs to underestimate in a way that creates a very negative outcome. This is because any form of optimism is bad budgeting.  The business owners who honestly think they are going to make the same amount of money this month as they did last month are fools, especially if they create a budget to reflect that fact.  People who think their bills will stay the same as they were last month are setting themselves up for failure. You have to assume the worst so that when the worst happens, you are not caught off guard. 

Things Can Go Wrong

You may make fewer sales next month, you may be ill and off work, or you may have added bills because an uninsured driver backs into your car. You have to assume that things will go wrong, but you also have to temper your negativity. After all, you cannot assume you are going to be robbed out of house and home every month, so how do you temper your negativity? You need to moderate your negativity with a simple percentage.  Try working with a reasonable percentage. Always assume that the money you made last month is 20% more than you will make this month. Also, always assume that your bills next month will be 10% higher than they were last month. Your figures are going to turn out wrong since you cannot predict the future, but at least if you are pessimistic, you are less likely to end up owing money or losing money.

Optimists Don’t Always Grow Faster

Those who budget with a mindset of growth and moving forwards are probably going to plan for better growth. However, such optimistic budgeting may lead to massive holes in the budget, which will then stunt company growth. This is especially true if future growth plans depend upon spending money that has not yet been earned. 

Expect the Worst and Then Pay Extra

Since you expect the worst, it probably comes as no surprise that at some point even your worst estimates will be wrong. There are going to be times when unexpected things happen that severely impact your earning potential or crank up your bills far beyond acceptable levels. The 20% and 10% idea from earlier is a good buffer, but you need a backup plan, and that is your contingency fund. Every now and again, your pessimistic projections are going to be wrong, and you are going to do slightly better than usual. This usually means there is more money in the budget, but rather than investing the extra money into your budget, put it into a contingency fund. It is a separate bank account where you store your emergency money. This is money that you do not touch unless something goes very wrong. Some people think of it as self-insuring because they only touch the money when something goes very wrong. 

Stop Making Unnecessary Losses

It sounds obvious from the start, but people take entire courses on financial planning just so they can figure out how to cut costs without cutting convenience, productivity or efficiency. Even in a private household, there are areas where you can clean up your spending or reduce your losses. For example, Netflix is becoming more and more of a joke these days, so cancel it and try something better and include free online streaming services. Start car-pooling programs, and install heat-saving devices. If a loss is occurring and it is not making your product better, your home better, and is not making things more efficient, effective, or convenient, then consider getting rid of it. 

Tracking and Monitoring Spending

What has been discussed so far is pretty important, but the starting point is correct money tracking and monitoring. If you cannot fully understand where your money is going, and where it is coming in, then your budget is wrong from the word go. The place to start is tracking and monitoring. If you cannot account for where every penny goes, then your budgets will always be wrong, and all the pessimism in the world will not save them.

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