Reasons To Develop A Budget And Live By It
When it comes to finances, people generally fall into the following groups.
Planners control their financial affairs. They budget to save. Strugglers have trouble keeping their heads above rough financial waters. They find it difficult to budget to save. Deniers refuse to see that they’re in financial trouble. So they don’t see a need to budget to save. Impulsives seek immediate gratification. They spend today and let tomorrow take care of itself. They couldn’t care less about budgeting to save.
Knowing what kind of financial manager you are will help determine what changes to make. To maximize your wealth-creating ability, you want to be a planner, and that involves learning to budget and save.
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Most people either hate their budget (strugglers), refuse to make a budget (deniers) or insist they don’t need a budget (impulsives). They tend to equate “budget” with “poor”, which is, of course, absolutely not the case. They also associate budgets with denial, comparing it to being on a diet; once again, it doesn’t have to be that way. Any realistic budget has to account for personal expenses, as well as the occasional splurge.
I pretty much had an “AHA!” moment the day I realized that going on a budget didn’t necessarily mean depriving myself of most of what I liked. I went back to my previous budget spreadsheets and immediately saw was I had failed again and again. Sure, I didn’t save much at the beginning, and blew it on a couple occasions, but it’s been easier to handle as time went on.
There actually are many reasons to make (and stick to) a budget. I’ve listed my personal top 10 below, in no particular order.
- Reward yourself. It’s important to (once more) clarify that a budget is a tool to help control your expenses, not to keep you from buying what matters to you. It gives you the ability to control your money instead of the other way around. It’s not about denial.
- Free up extra money. Your budget doesn’t determine what you can buy. Your income does. Besides, a realistic budget frees up money for you, that you are then able to spend on things you really want instead of wasting it on things you don’t remember buying.
- Live within your means. A budget will help you plan your expenses based on your income, enabling you to reach your financial goals more easily. It’s more than what you are spending and where. It is your goals and plans, and if you don’t have guidelines for them you probably won’t reach them. You’ll know if you’re living within your means. Before the widespread use of credit cards, you could tell if you were living within your means because you had money left over after paying all your bills. The use of credit cards has made this much less obvious.
- Control your expenses. Making a budget is simply planning your expenses so you can buy what you really need, as opposed to what you want. If you have ever looked in your wallet and wonder where you spent all of your cash today, you need to have a budget. After all, fifty bucks can slip through most people’s fingers rather quickly.
- Plan for the future. A budget is probably the most basic, yet the best financial planning tool. It includes a mechanism for setting aside money for savings and investments. It also reveals areas where you’re spending too much money so you can refocus on your most important goals.
- Get out of, or avoid debt. No matter your income, you will handle your finances much more efficiently. You are able to look at your spending to see how you can make it fit your income. Your income will never fit your spending on its own, so you have to adjust your spending first. A budget can keep you out of debt or help you get out of debt.
- Improve your relationship. Whether you like to or not, you will profit from establishing a budget. it can improve your marriage or relationship. If the two of you stick to the budget, it will bring you together. You are working with each other towards common goals. Arguments about money will be lessened. You are showing that you respect each other’s wants and needs by spending with the other person in mind.
- Track your progress. Living without a budget is like driving a car without a steering wheel. It’s a guide that tells you whether you’re going in the direction you want to be headed in financially. You may have goals and dreams but if you don’t measure your progress, you may end up going so far in the wrong direction you can never make it back. Can you imagine the government or a major corporation operating without a budget? No, and neither should you.
- Plan for hard times. No budget means you run the risk of getting buried in debt if you ever fall into hard times. A budget can improve the quality of your life. You have a plan. You no longer have to lie awake wondering how you will make ends meet. Your budget lays things out for you. You’re less stressed and able to enjoy life a little more.
- Human nature. Your expenses increase as least as quickly as your income. Do you remember what you did with your last raise? Did you simply add that to your expenses?
To know if you need a budget, try answering the following questions
- What did you do with your last withdrawal from the bank?
- How much do you need a month to live on (give or take $50)?
- Have you ever received a bill in the mail and suddenly realized you COMPLETELY forgot about that one?
- Do you have an emergency fund?
- Do you often have to check your account balance to know how much money you have left?
The more negative or vague your answers, the more you need a budget. Done properly, you only stand to gain from the process. As a result, you will:
- Know your real financial situation
- Understand where your money goes
- Control your debt much more efficiently
- Find uses for your money that will increase your wealth
That has to feel good!
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