My wife and I have been doing financial coaching with other couples and individuals for eight years now. The first thing we always start with is setting up a budget.
From time to time someone comes in with a drug problem. This means their spouse drug them to a financial coaching meeting. On those rare occasions, we can frequently get the question, “Why do I need a budget?”
If you have ever asked this question, here are seven reasons you need a budget.
Put Yourself In Control
One of the main reasons people resist budgeting is that they have a fundamental misunderstanding of what a budget is. When you are a person who enjoys spending money, the word budget brings up images of chains or a giant neon sign flashing NO! NO! NO!
In reality a budget is just a plan. Instead of looking back and trying to figure out where your money went, you get to tell your money where it is going to go. Think of it like a road map for your money, not a restriction on your spending.
Good for Your Marriage
60% of all divorces cite money as the primary reason for the divorce.
God seems to have this sense of humor where people who are opposites tend to get married. So frequently you will find a spender and a saver have decided to tie the knot. Now this is really a good thing because the saver makes sure you get to retire and the spender makes sure you don’t end up living in a cave with a small bed and an internet connection.
The problems come in when these opposites do not communicate about money. So you have one person throwing money around like a Santa with candy canes on a parade float and the other hoarding the money like a crazed chipmunk prepping for winter.
A budget allows you to sit down, set priorities and determine exactly how much money will get spent on fun and how much gets put toward the future.
Helps You Get Ready for Emergencies
If you do not have a plan for your monthly spending, it is highly likely you do not have a good plan for your overall money. By budgeting your money properly, you can make sure you have your emergency fund ready for the worst.
Reveal Bad Spending Habits
Now I am a pretty frugal person (UNDERSTATEMENT ALERT), but even Amy and I were overspending in some areas when we did our first budget. Our biggest overspend was on groceries and it allowed us to realize that we needed to switch to cash envelopes for categories where we were overspending.
Achieve Your Goals Faster
When you have a plan in place for your day to day finances it allows you to think more long term. So whether it is paying off your debt or saving for the next vacation, your monthly budget will work like an engine that gets you to your destination even faster.
Get a Better Deal
If you are not a natural deal seeker then having a budget is vital to helping you find better prices on the items you buy. Let’s say you need to purchase a bluetooth headset. Since you are budgeting, you put $45 in your budget to purchase a headset. You start looking around and find several that you want in the $55-$75 dollar range. Since you know that you have only $45 you keep looking till you find an acceptable headset in your price range.
If that same person never found a deal, they could budget in another $30 the next month for a slightly more expensive model and still come out better off than putting the difference on a credit card.
People who do not have a budget frequently pay what they think is the going rate without spending the time to find a better option. Either that or they turn to debt to get the item they want right away. Budgeting helps you be more disciplined so that you not only get what you want, but you get it at a better price or by purchasing it in a way that benefits your financial goals.
Feel Less Stressed
People who feel stress over their money typically don’t know what is going on with their finances. The lack of knowledge makes you feel powerless to control what is going on with your world. And, since we covered emergencies above, it allows you to focus on emergencies in a completely different way.
Before I started budgeting, every unexpected problem that popped up had two stresses: the problem itself and the money to fix the problem.
Car breaks down? I had a car problem and a money problem.
Every problem created double the stress. Less than two months ago, we had both of our cars break down… on the same day. Yeah that was a bad day, but it wasn’t super stressful. Even though I had to watch the tow truck take both of my cars at the same time, the only thing I needed to happen was getting one car back so we had some transportation.
Moral of the Story
START BUDGETING!! You can start today, get your finances in order for the end of this month and get a plan for next month. As with anything in your finances, the most important thing is that you get started today.
Joseph Sangl says
Thanks for the link shout-out!!!
There are a LOT of additional personal finance tools at my web site – just click on TOOLS at the top of the page!
Frugal Dad says
This is the way to do it – break down those annual or semi-annual payments into smaller, more manageable savings. My wife and I use this for Christmas, car insurance, and now for some upcoming orthodontics work my kids are scheduled to have.
Karla (threadbndr) says
Heck yeah. Starting to put money back for my expected expenses was the best thing I’ve done for myself. Started with property tax, and added the other categories that you list above plus vet expense. This tip and the three months of ‘e fund’ have made my financial life a LOT less troubled.
I keep my fund in a mid yield savings account that is linked to my checking. I don’t really care so much about the interest. I just want it safe and quickly accessible. It’s escrow, not investment.
All great reasons for a Budget, or what I like to refer to as a ‘Spending Plan.’ The road to financial freedom starts by understanding your income and effectively managing your expenses. Good stuff.