Why budget? Well, besides the 4 reasons you need a budget below, it is simply a shame not to. You owe it to yourself.
All of us spend between 1 and 2 decades getting prepared in school to make a living. Unfortunately that is where most of us stop. We learn how to make a living and leave it at that. Most of us go through life being totally oblivious about one of the most important aspects of our lives. Where does our money go?
Most of you just go through life paying your mortgage and other bills. When done you find out what’s left (if any) and move on to the next month, rinse and repeat. If there is money left, great, if not, you just worry, probably sleep a little worse and you just wait to see where it lands the next month.
Don’t let your finances control you. It’s wrong. It has to be the other way around: You should control your finances!
How can you control anything other than by learning about it? A budget will allow you to control it. For those cases that can’t be controlled there is an emergency fund, but that is for another article.
The process of budgeting teaches you about your finances. By doing it right it will point out exactly where each dollar of your paycheck goes. Knowing where each one of your hard earned dollars goes you can make educated decision about whether those dollars are well spent or not.
So here are three reasons you should be budgeting:
Be educated about your money. Education doesn’t stop when the school bell rings. Don’t just be educated on how to make money. Educate yourself on where your money goes. Don’t be caught off-guard each month wondering where it all went.
Budgeting allows you to control your finances instead of having them control you. It allows you to preemptively manage your finances throughout the month and year, instead of having to react to them month after month. Wouldn’t you prefer to be in control? Being educated about your money empowers you!
“Budgeting allows you to control your finances instead of having them control you.”
Budgeting can help you get out of debt. When in debt, budgeting takes on a much more practical role in your life. Some of you are in debt because of unforeseen circumstance but many of you are in debt simply because you don’t track your expenses and end up spending more than you bring in. Creating a budget when in debt is a necessity. You are spending more than you bring in. The only way to get that under control is to itemize your expenses and make decision on what needs to, and what can, be cut. By knowing exactly what costs what, you can start cutting based on priorities. Agreed, some expenses can’t be controlled such as your mortgage or insurance costs. You’d be surprised though, how variable many of the other expenses are. Cable, do you need it? Do you need all of it or can you cut HBO and Showtime? Heating bill: Do you really need the room temperature at 72 all day? How about 69 during the day and 63 at night? You’re paying what for that extra scented kitty litter?
“Budgeting allows you to identify and prioritize expenses so you can make decisive cuts where necessary”
Budgeting can help you determine if you’re ready for retirement. Retirement for many of us is simply determined by the age we reach. Unfortunately even then you may not be ready do so financially. When retiring there tends to be a major shift between what money comes in and what goes out. If retirement approaches or you’re planning for an early one, budgeting will inform you whether you are ready or what it will take to get ready. Being able to financially cope is all about balancing your expenditures with your income. Retirement tends to bring a huge change on the income side (possibly also on the expenditure side). If there is any time to start a budget, doing it before you retire would be the good one.
“Budgeting can prepare you for major shifts in what money comes in and what goes out”
Budgeting can get you beyond controlling your finances. It can help you build wealth. Don’t get me wrong, being in control of your finances is great but once you are; why not take a step further? Instead of “just” being in control, how about making your finances work for you. Budgeting will allow for making plans beyond just control. If you know exactly how much you spend and how much is left (latter, tends to come with control) why not make plans for the money that is left. Invest it, grow it, and let it make more money for you. Budgeting is a great tool in building wealth. I’ll be the first to admit that building wealth can go a long way without a budget.I’m also convinced, had I started a budget earlier than I did, I would have reached my goals much sooner.
“Budgeting can be a great tool for building wealth”
There you have it, four reasons you should create a budget. Should you want to learn more, check out my 5 part series on budgeting and the 4 major steps to budgeting on this blog.
You may be surprised how much is involved with creating a real budget and living it by it.
Good luck reaching your financial goals.