5 Reasons Why You Need to Budget
Not having a budget. This is far and away the most common financial mistake I witness from people of all walks of life (wealthy or poor, it matters not). Most everyone knows they would be better off tracking their cash flows, yet they still don't. Why is this? Here are a number of the reasons I've heard over the years.
- Budgeting simply takes too much time
- It might expose unhealthy spending behaviors I'd rather ignore
- Budgeting is difficult
- I already live paycheck to paycheck, so there is no need to budget
- Income is not consistent, so budgeting is difficult
- I would like to, but my spouse is not on board
- I'm not good with numbers
These are all excuses, and not one has any true validity. Free software applications have helped simplify and automate the budgeting process to the point where it's practically effortless. Though budgeting may expose some frightening truths, knowing and correcting any bad behaviors is the only path towards a better future. Face the reality of today or face a worsening reality tomorrow. Excuses are those things we tell ourselves that no one else believes.
Despite understanding its importance, motivation is likely required to help kick start those budgeting efforts. Below are five reasons why everyone needs to have a budget in place. Pick the one that most resonates with you, put it to memory, and use that as encouragement to better track your financial story.
1. Enhanced Peace of Mind
Uncertainty in any area of life can lead to stress. On the flip side of that, control can lead to a feeling of certainty which can have a calming effect in a person. Budgeting is the tool that can provide a sense of financial control, and in turn, reduced stress and peace of mind.
2. Strengthened Savings
There is no investment strategy, rewards program, or retirement plan match that can overcome a lack of savings discipline. If you don't know how much you are spending, then an effective savings plan cannot truly exist. A budget will help you map out how much money you have left over at the end of each month/year, and provide insight into inefficient areas of spending; both of which are crucial in boosting your savings efforts.
3. Better Attainment of Financial Goals
Without knowing monetary inflows and outflows, financial goals have no relevance. A budget provides the foundation for which strategic savings can occur, which then allows for financial objectives to be mapped out. One cannot occur without the other. It's simply the monetary circle of life.
4. Increased Alignment of Values
A major side benefit to budgeting is in simply developing an awareness of where your money is going. Upon a thorough analysis of spending, many people are surprised to find they are unknowingly allocating a hefty amount of money to certain places they would rather not. This reality can be the wake up call needed to make adjustments that better align spending with values and convictions.
5. Boost Family's Odds of Success
The U.S. has a financial literacy problem, which is rooted in the fact that personal finance is often neglected as a part of our primary education. Parents must take ownership of this, and make budgeting front and center of that education. I suggest that parents incorporate their children into discussions of family finances so they gain an honest understanding of how a household operates. If a parent is open in stressing the importance of budgeting and savings, chances are greatly improved the children will carry those lessons forward in life. This could very well also reduce the odds of having adult children living in the basement!
Budgeting doesn't have to be a complicated process. As mentioned, there are a number of tools available now that really simplify the process. Two of my favorite automated budgeting applications are Mint and Personal Capital. I provide a bit more color of these two services on my resources page. There, you will also find a template to help track the budget of a household. I am confident you will find these tools useful.
If you don't currently have a budget in place, I encourage you to begin that process today. Once established, you won't regret it. If you are a regular budgeting savant and have some tips that have helped you along your journey, please do share in the comments section below!