A couple of days ago I went to a one-day financial planning class.  I got a few nuggets out of the class and I’ll share one with you here.

The instructor spent a few minutes on creating a working budget.  This part was pretty standard.  If you don’t have Quicken fired up, then

• Take a standard list of common spending categories,
• Gather up a month’s bank statements and pay stubs, and
• Categorize the month’s expenses.

This produces a good starting point for a working budget.  But that’s just one of the budgets he recommended drawing up.

He recommended four separate budgets which cover the present, a couple of what-if’s, and the future.  Here they are:

1. The current budget. This is the one that is based (largely) on current expenses, with a tweak or two for spending categories that you know may be too high or too low.
2. The dead-spouse budget. What if my wife died unexpectedly?  How would the spending categories change?  For starters, I’d need to consider day care for my daughter or some other arrangement.  My time commitments would certainly shift around a lot, and that would affect how much time I could spend doing other things to make money outside of my job.  Could I do the things she does now, or would I have to pay someone to do them for me?  More budgetary considerations.
3. The dead-me budget. What if I died unexpectedly?  My income would go to zero.  What would that mean for my family?  How would they manage without my paycheck?  Have I put in place enough other resources so that they can do what they need (and want) to do?  These questions give rise to a whole new set of numbers.
4. The retirement budget. What if I quit my day job?  What other benefits that are tied to my job stay, and what ones go away?  Do the income streams that remain add up to a comfortable existence?  This budget is another whole set of numbers.

What is the purpose of making these budgets?  The main purpose, for me, would be to put the spotlight on holes in my current budget. Take away my paycheck, and what’s left?  Take away my wife’s good works, and what slack do I have to assume?

Do the numbers still work? If they don’t, then I have work to do so that they do work.

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Four budgets you absolutely have to make.