In this week’s post, I’m going to talk to you about a topic that is sure to make you the star of every dinner party. Ok, probably not. But it may help you afford to even attend dinner parties.
That topic is budgeting.
Budgeting is incredibly important for financial health, and yet so many people don’t do it. This is probably because it’s boring, it takes a lot of time, and it can be really stressful when you start to deliberately look at how much money you don’t have/should not have spent.
Budgeting can be daunting, I get that. But that doesn’t mean that it should be avoided altogether. It may not ever be the most enjoyable thing to do with your time, but it might be one of the most important things.
Why You Should Budget
Did you know that according to a recent US Bank poll, only 41% of Americans use a budget to track their finances? That means that more than half of Americans don’t know where their money is going each month. I used to be in this boat. My philosophy was “don’t spend money.” But at the end of each month, I didn’t really know what I brought in and what I did spend.
Over time, through trial and error, I came up with a budgeting system that works for me. As a result, I found my financial health and outlook begin to improve. Over the years, I have noticed many benefits that have come as a result of keeping a budget. Here are a few:
- You are in control. Budgeting helps you be intentional with your money. You can say, “Ok, I have Y amount which means I can only spend X amount.” There is no guessing as to your spending. You know what is happening and you get to decide what to spend your hard earned cash on.
- You have more flexibility. It seems counterintuitive, but when you set limits on your spending, you’re able to do with it what you want rather than have it control your life. Let’s say that I take in $3,500 per month and I set a budget of $2,500 per month for my main expenses. That means that I have $1,000 left to do whatever I please! You can put this back into your budget or put it in savings, but the fact is that you will have more money and more flexibility.
- Helps you set and achieve financial goals. If you want to buy a car, a house, save for retirement, or go on vacation, you’re probably going to have to save up for that. Keeping a budget can help you know how much you need to save and what you need to do in order to get there.
- Encourages teamwork with your spouse. If you’re married, making and continually discussing a monthly budget can help keep lines of communication open. Many marriages face problems that have to do with money. These problems often come down to a lack of communication and a lack of budgeting. When you budget, you are able to align your goals and priorities with your spouse and then work together to achieve them.
- You actually save money. One of the greatest benefits of budgeting is actually being able to save money. Once you start budgeting and realize that you’re spending nearly $250 per month on eating out, you might find the motivation to cut back or cut out entirely. And instantly, there’s $250 per month that you typically didn’t have. This very situation happened to my wife and me when we started to get serious about budgeting.
- Retirement. I know many people who put off saving for retirement and are now knocking on its door. I can’t imagine what it would be like to be retiring in just a few years with little to nothing saved up. Creating and maintaining a budget can help you set aside money and plan for the future. Even if it seems like a long ways away.
- Helps you see the big picture. When you’re budgeting and constantly looking at your financial wellness, you’re able to see the big picture. You can know if you have enough saved up for a rainy day or if that’s something you need to make a priority. You will be able to see potential money problems before they hit and be able to steer clear or navigate through to safety.
The list above is certainly not comprehensive, as there are so many other ways that keeping a budget can benefit your life. If you’re like me, it’s hard to do something unless you can see the benefits. Hopefully, I have given you a few reasons or ideas as to why you should start a budget if you don’t normally keep one.
It doesn’t matter if you find you’re a high-income earner or a low-income earner, you ought to know what happens to your money at the very least. By creating a budget, you get to tell your money where to go and what to do rather than scratching your head and wondering where it went. When done consistently, you’ll start to notice some of the benefits I have outlined here.
What benefits have you seen by keeping a budget?