It has been observed that most of the employees of Bank of America create individual budgets but do not keep a record of them. This is because most of the employees return to the bank for personal loans just two weeks after receiving their salaries. Due to this finding, the factory utilized financial analysts and decided to develop measures of controlling and curbing extravagance among the bank’s employees by enabling them to be able to keep their own budgets. The financial analyst described a budget as a compass and a mirror of how funds will be spent. It is termed as a compass since it directs those who use it into the life of wise spending and as a mirror because it reflects how money ought to be spent. Alternatively, a budget is a tool that provides earners with crucial information that helps them to manage their finances (Brott, 2007, p. 55). It is always better to be aware of potential over-spending than to spend recklessly without being aware.
This awareness is what a budget creates. People who spend while keeping their budgets in mind are cautious spenders because the budget prevents them from being extravagant and impulse buyers. In the case of budgeting, a spender is able to attend to most, if not all, the elements that require spending in order of importance. It is clear that many people are well informed of the amount they earn but lack the knowhow of how they spend it. Most people fail to keep their budgets due to such budget blunders as setting impractical goals and giving up too soon on budgets. Some are driven by ego into spending more than reasonable because they are motivated by the urge to maintain a high reputation. The cause of one not living within their own means draws the effect of long term financial hardship. After an internal research on the employees’ financial discipline, it was discovered that the major cause of not keeping personal budgets was due to impractical goals.
Impractical goals may emerge if one does not carry out a proper market investigation before preparing the budget of products and services that will be used in a given period of time. The first step in starting a budget is to add up all income along with all expenses, then juggle the two until one gets the income equal to the expenses (Brott, 2007, p. 53). Monitoring budget balance is another important aspect in keeping a budget because not being able to monitor a budget is an impractical activity which results into an impractical goal. While monitoring budgets, recording the dates when transactions were made is very crucial. Furthermore, checking personal bank accounts consistently is another approach of budget monitoring. With these in mind, it is rare to create impractical goals since one is constantly updated about available finances.
As observed, the immediate economic effect that an employee who has experienced the outcome of impractical goals is; limited funds. This is a negative effect. The individual may settle on borrowing money in order to supplement limited funds. This may be the reason why the number of bank employees asking for loans is on the rise. Borrowing indirectly implies getting into debt. A debt is an economic distress. Another economic effect brought about by impractical goals is rather positive in that when the individual is granted a loan by a bank, the bank will benefit through the interest that the loan will generate. Therefore, the negative effects can only be avoided through making practical goals. Practical principles are the principles that depict wisdom and caution in spending. By observing practical principles, an individual is able to live in a world of personal finance – a life with no debts and absent of financial distress.
Some of the practical principles are reality checks; change in over spending behavior, cease from adding more debts to existing debts, monitor one’s cash flow, keep clear records and finally, save funds. Brott (2007) observed that it is not what is earned that gives someone financial security, but what is saved (Brott, 2007, p.42). After about three weeks, after salaries are paid to the employees of the bank, it has been observed that most of them showed low self-esteem. It was discovered that this was because they borrowed money and became debtors, which is a haunting condition. After borrowing money, one assumes the position of a debtor – a person who owes another and who automatically gives the lender the power of auctioning property in case of failure to pay the debt. The thought of being a debtor may result into withdrawal from a healthy lifestyle, which is being happy. When this dreaded possibility happens, lenders may be robbed of their active social life. This also has an ill effect on the future dreams of a person. It implies that whatever desire such as purchasing assets that one may have for the future will have to be delayed while waiting for a fresh financial start due to the loan payment.
The leading second cause of not keeping personal budgets as observed from the study was that employees gave up too soon after tabling their personal budgets through ignorance. Also findings revealed the lack of discipline of the bank employees towards their budgets after developing them. The employees would tend to quit being governed by the budgets. Quitting was due to the frustration of things not working out as planned. They would tend to run away from the fact that the lack of a budget would have negative implications on future spending because one was more likely to be extravagant. Another thing similar to running away is avoiding developing a budget. This is always the case with people who have a higher level of income and therefore feel secure even without coming up with personal budgets. Ignoring the need to have a budget may be brought about by the bitter realization that it is hard to use a budget. Some employees avoided keeping personal budgets after realizing that the unexpected possibility of inflation may take place, leading to higher cost of goods and services listed in a budget.
In regard to this, a budget is not certain because the plan for the money in the budget may change and need to be used in some other urgent and unplanned or uninsured occurrences in life. Therefore, employees ought to be enlightened by this to enable them to prepare for possible risks and set aside money for other unexpected possibilities. Surely, having a budget is one thing and being determined to live by it is another. A finding also observed that some employees embraced over-spending and impulse buying due to the spending freedom acquired by giving up on a budget. Parallel to that, an individual is likely to be rendered bankrupt because of the vulnerability to extravagancy and impulse buying. This is because one spends with the misleading notion that money is still amply available in the wallet. Another economic effect that is possible is that one will not be able to meet other major financial demands in life due to ignoring a guide – the budget.
When an individual quits using a budget, a false freedom and independence will be created. This will appear to be a positive effect to the individual. However, it is a negative effect to their reality because ‘enjoying the freedom will not last for long.’ These effects are likely when a client is unaware of how a budget balance should be made, how to allocate funds in a correct way and the important factors to consider when making a personal budget. The secret and most obvious word used to enable one to keep a budget is discipline. Level of income is also a key consideration when talking about budgets for employees of the Bank of America. Monthly budgets are recommended because salaries are mainly earned monthly. Savings for unplanned occurrences like those that have not been insured should be included in budgets.
Proper spending habits will enable financial stability, regardless of the level of income. This is evident in the life of people who have saved enough for a secure and debt free retirement regardless of the small amount of income they earned during working periods. If one is broke, then one should not spend. This means to obtain credit cards and loans is unwise. Debt is not an ally; it soothes but does not cure the problem of financial deficits. In his work, Mulonas (2004) puts it crystal clear that when it comes to the high level overview, it is not that difficult: One prepares a budget, invests and then retires (Mulonas, 2004, p. 293).
Furthermore, Blokehead (2014) provides basic guidelines in developing and keeping a reliable budget. They include: Automate bill payments, have a few bank accounts because many accounts complicate a budget, avoid credit cards as much as possible, create a simple spreadsheet file and last but not least, use the sixty percent method; which entails fitting all expenses to represent 60% of income (Blokehead, 2004, p. 16).
Brott, R. (2007). Basic Principles for Maximizing Your Cash Flow – 7 Steps to Financial Freedom! United States: ABC Book Pub. Mulonas, D. (2004). I’m not flipping burgers when I’m 70! Edgewater, NJ: New Art Press. The Blokehead. (2004). Minimalist: How To Prepare & Control Your Minimalist Budget In 30 Days. United States: Amazon.