The Queen needs a budget so why shouldn't you?

Yes you heard right.  The Queen of England, one of the wealthiest people in the world, needs a budget.

Let's take a quick look at her current situation.

• She lives on fixed income provided by her employer and her expenses are bigger than her income.
• Her primary residence, Buckingham Palace, has the following problems:

• Furnace needs replacement
• Furniture is worn and needs replacement
• Some parts of the building are in serious need of repair (cracks in roof, some walls falling apart)
• Utility bills increased significantly last year due to unexpected cold weather

This sounds just like problems faced by everyone else but of course everything is on a much bigger scale. For example, we may pay $3000-5000 CAD for a new furnace whereas it will cost her $1.65M CAD.

So if we were to do one of those financial checkups on how she is doing it would look something like this:

The Queen needs to eliminate the gap between her expenses and income.  She has made a good start  by reducing her travelling expenses, not spending as much on people helping with household chores and adding to her income by renting out rooms in her home.  Unfortunately even after this, she has had to use a large part of her "rainy day" fund for years for everyday expenses not leaving anything to use for repairs to her house.  An option, available to most people, of downsizing her house and selling other property holdings may not be an option since they are not owned personally by her but by the people of England.  Making hard decisions to correct her situation can not be delayed any longer.  Here are some key items to immediately look at:

• Talk to her employer about a raise.  The royal family and their properties provided $418M CAD in profit to them last year.
• Talk to her employer about substantially reducing the property holdings they own either by selling or renting them
• Reduce non-essential expenses, especially ones not contributing in a significant way to her employer's profit. For example, the Royal Train costs $1.65M per year to operate.      

Want to read more about the Queen's finances?  Checkout the following:

• Globe & Mail, October 14, 2013
• National Audit Office, England - Royal Travel, Sovereign Grant, Crown Estate

James Whelan

Budgeting - Are you top-down or bottom-up?

I was re-reading an article from MoneySense, one of my favourites (link below) and they were talking about budgeting and the two main approaches - Top-down and Bottom-up.  Top-down is where you  set a budget and follow it.  This is the one most talked about where you collect all your receipts to figure out where you are spending your money, set a budget amount for all the spending categories and then track every expenditure.  If you're a very detail-oriented person, this works for you.

The one that's not talked about so much is the Bottom-up approach.  With this approach, you decide in advance how much you want to save in advance and put it aside before spending on other things.  The article gives a saving target as an example but you could extend this idea for other things.  Let me give you an example.  When I was in university, I had 4 different room mates over my time in school and we shared the grocery expenses but didn't really know who would be doing groceries so came up with a simple solution.  At the beginning of each week, each of us put a agreed amount of cash in a cookie tin and whoever was going to the grocery store used the cash and put the receipt and change back in the can.

After university, when my wife and I had more financial responsibilities (e.g. house, car, insurance), we used this same idea.  The cookie tin became a separate bank account and the cash in the tin became transfers from our accounts right after our pay cheques were deposited for all these regular expenses.  What was left in our banks accounts after the transfers could be spent on other, more discretionary things.

Try talking with your kids or students about how you budget and what works well/not well for you.  It might require a bit of experimentation but bottom line is everyone has to decide what works for them.

James Whelan, www.moneymatters4life.ca

Link: How to Save More, Summer 2012, www.moneysense.ca