It seems to be very popular to write about how a budget isn’t necessary because “they don’t work” or “who really sticks to them?” Well, sorry to say, yes, you need a budget and no, those aren’t valid excuses for not doing one.
I honestly feel that if you want to have true financial success in your life you need to stop, do a budget, track your expenses and make your behavior match what is on paper. If you don’t do those things then how do you know where your money is going? How do you know that you can’t pay off debt or save for retirement? You assume you can’t and just accept defeat but then for some reason you still find a way to buy some crap that is meaningless to you and then wonder where your money went.
PAYCHECK TO PAYCHECK
Roughly 7 out of 10 people live paycheck to paycheck and if you fall into this category, which you have a 70% chance of doing, then this alone should be reason enough to know that you need a budget. When you are living paycheck to paycheck you don’t have that much room to make mistakes. Credit cards make it very easy to live a bigger life than you can afford for a period of time but then you get stuck with big minimum payments eventually which only piles on to the financial stress.
I’ve commonly heard that about 8 or 9 out of 10 people feel they have control of their finances. Keep in mind that is their perception. When you factor in the 7 out of 10 people living paycheck to paycheck then you can see there is a gap between their perception and their reality. If someone thinks that they are in control and they read that they don’t need a budget then that only reinforces their bad behavior. They are missing that most likely the author is either not intending for them to be the recipient of their message and/or they are selling something that supports their view/product and just don’t care if it is for them.
….SO WHAT IS A BUDGET?
A budget is your opportunity to tell your money where you want it to go. That’s it. With a budget you are being purposeful and decisive for how you want to spend your money.
Your budget doesn’t have to look like anyone else’s either. It should reflect your values and you get to choose how much you allocate in each category or even if you have certain categories at all. Don’t let it confine you. It should be something that you find empowering knowing that if you follow it you will achieve your goals is tremendous.
….BUT THEY DON’T WORK
Here is the kicker though, just because you write down that you want to spend $400 on food this month and then you go out and spend $700 does not mean that budgets don’t work. It means that you either ignored your budget or you were not realistic about what you actually spend on food. The fact that you spent more than you wrote down is not evidence they don’t work. It is evidence that there is a gap between what you think you spend and what you actually spend OR that you aren’t paying attention to what you are spending your money on.
It this respect, it is a tool that is shining a light on your reality. That very much sounds to me like it is working. You then need to respond by either upping the category or changing your behavior.
….BUT THEY’RE BORING
Well, that is life. Sorry. You know what isn’t boring? Being able to sleep at night because you have control of your money. Going on a trip that you have saved up for and paying cash. Paying off debt after finding extra money in your budget. How about being able to retire with dignity? Those are awesome things and not boring at all!
It’s time to put on your big boy pants and suck it up. Once you realize that the budget is not punishment but rather a means to an end then it you’ll treat it as such.
DOES EVERYONE NEED A BUDGET?
If you are paycheck to paycheck you really need a budget. Period.
Some people are natural savers and are frugal spenders. These people don’t need a budget yet they most likely use one in an effort to maximize their savings potential. If you aren’t a natural saver or frugal then you really need a budget to help keep you on track.
It doesn’t mean you need to do one every month for the rest of your life but I suggest doing one every time you have a change in income or living situation and track your purchases each month to keep you on track.
PAYING YOURSELF FIRST
It might be that you ‘pay yourself first’ and live off the rest. Well, guess what? That is a budget. It is a simple budget but it is just that. Paying yourself first is the concept of setting aside a portion of your income towards savings and then living off of the rest. If you follow this method how did you arrive at the amount you save? You most likely did it by evaluating your monthly expenditures and then determining you could afford to save ‘x’ amount.
Even if you spend less than you earn and don’t have a budget you could still benefit from one to squeeze out more money to save each month.
The point is that you need to find what works for you but budgeting is a critical aspect of being in control of your finances. It is a tool that allows you to evaluate where your money is going and should reflect your values.
Don’t let other people’s failures with budgets hold you back from doing one and don’t let past experiences defeat you either. I guarantee that if you look to people who are successful at managing their money have a budget that works for them. You owe it to yourself to find a way to make it work. You have too much to gain by doing so and you only hurt yourself by not trying.