The Black Box of the Congressional Budget Process
Aug. 20, 2011— -- So, how do you do your household budgeting? Millions of us use QuickBooks or some variation thereof. For those who are technologically challenged (I was for years), yellow pads, composition books, copy paper, accounting journals, even index cards, are the medium of choice.
However different their materials may be, most consumers who keep a household budget without the aid of an accountant or bookkeeper use pretty much the same method. As a rule, even accountants and bookkeepers use the same method as those who scribble on scraps of paper.
We call it household budgeting—a simple, straightforward name for a simple, straightforward, sometimes painful process. Number crunchers, however, simply can't resist giving things like this a much more complicated-sounding name.
[Article: The Silver Lining in the U.S. Debt Downgrade]
According to them, your household engages in what is now called "zero-based budgeting." Simply put, you start at zero and go from there. If cash gets tight, you might reduce your line item for baseball game tickets from $1000 a year to only $500 or from $100 a month to $30. You can also add or eliminate line items with a simple stroke of the pen—maybe you can't afford baseball tickets at all. Regardless of what you decide to do, one thing is certain—if you spent $1,000 on tickets last year and $1,000 again this year you didn't cut your spending.
You also intuitively recognize that budgeting and spending is only meaningful across certain time periods. If you budget ahead, as you should, you might have budgeted $1,000 for tickets next year. But you wouldn't have budgeted, under any circumstances, $1000 for baseball tickets in 2016. Why? Because you're smart enough to recognize that there are too many unknowns. In five years, your 10-year-old might be bored with baseball; maybe there will be a strike in 2016 (it seems like every minute players in some league are walking out and owners are locking them out); maybe—no, certainly—ticket prices will have changed by then. And, of course, it's in the back of your mind that you might be making less money in 2016, though perhaps you'll be making a lot more. Heck, maybe you'll win the lottery.
