So you’re not convinced that you need a budget? You think that a budget is a good strategy for someone else, but it’s not necessary for you.
You might go from month to month with more than a few dollars left in your checking account. Maybe you don’t have a problem covering your expenses each month.
For the first four years of our marriage, my husband and I were like that, too.
The problem is that while you’re making it fine month in and month out, you’re not really planning on how you’re going to meet your long-term financial goals.
We were able to cover our expenses and had a nice cushion in our checking account left over at the end of each month. The cushion increased over time, but a month or two after I left my job to stay home with our kids, we started to notice a slight decrease in our savings.
We knew we needed a change so we decided that it was time to start being more intentional with our spending. We knew it was time for a budget.
Once we started keeping a monthly budget, we began to see immediate progress toward our short-term and long-term financial goals.
Here are six reasons why you should not only have a written budget, but you should update it each month.
A budget is like a series of mini goals for your money.
I view each line item as a goal for that category. Setting goals and achieving them keeps you on track to live the life you want, and your money should have the same direction. When you specify how much money you want to spend in each area of your life, you’re one step closer to ensuring that you’ll reach your financial dreams.
A budget helps you feel in control of your money.
Ever since my husband and I started doing our monthly budget, we have felt more in control of our money than ever before. Knowing that we have a plan for every dollar that comes in and that we have realistic spending goals for each category for the month gives us a sense of security with our finances. With a quick look at our budget spreadsheet, we can easily see that we have enough to cover all of our bills and some left over to pay extra toward our debt.
On the few occasions when we’ve gotten lazy about keeping up with the budget, feelings of being out of control of our money have overwhelmed us. When this happens, once we get caught up and see where we stand, we feel like our finances are in order again. Even if we aren’t able to pay as much toward our debt as we would like, knowing our financial position helps us rest easy at night.
Updating a budget helps you act quickly if your identity were ever stolen.
By updating our budget throughout the month, I am constantly aware of where our money is going and what money is coming in. If I see a charge that I don’t recognize come through our bank account, I’ll ask my husband if he knows what it is. We usually figure it out rather quickly and realize that the label on the transaction was just misleading. But if we were ever met with a transaction we didn’t recognize, we could contact our bank immediately to dispute it and flag our account for possible identity theft.
A budget helps you determine areas where you can save money.
Each month when we have our budget meeting, I’ll review categories where we can potentially save money. Of course the most likely area where we can try to save money is the grocery budget. I’ll adjust the amount for our grocery budget up or down based on what we have going on during the upcoming month and what we have been actually spending on groceries over the previous few months. I’ll do the same with the gas category for our cars too. Periodically, we’ll review our utilities and other standard monthly bills to see if there are any ways to save money on those. Keeping a close watch on the actual numbers and how they change from month to month helps us determine if our budgeted amounts are realistic.
By consistently tracking your spending with a budget, you can have a more realistic picture of your future spending.
After you’ve been updating your budget for a few months, you can total how much you’ve spent in each category and find the average spent per month. (Just simply divide the total by the number of months in your situation.) Doing so will not only give you a more realistic idea of what your future spending may be, it might also be enlightening.
For example, you might expect that you spend about $500 on clothes in one year, but after 5 months you see that you’ve already spent $400. By doing some simple math, you’ll find that if you continue your current rate of spending ($400 / 5 months = $80 per month), you’ll spend almost $1,000 on clothes by the end of the year ($80 x 12 months = $960)! You can then decide if you need to increase your clothing budget or think twice the next time a sparkly top catches your eye.
A budget will help you reach your financial goals faster.
A budget is a tool used to make intentional choices with your spending, saving, and giving. By creating a budget, you are telling your money how and where it will be spent. You consciously determine what happens to your money when it comes in BEFORE it ever reaches your bank account. This allows you to plan how you are going to reach your financial goals.
For example, if your current financial goal is to pay off $24,000 of debt in one year, then you’ll need to average paying off $2,000 each month. By looking at your budget with your current income streams, you can easily see if this is a realistic goal. Or you may find that you need to reduce your spending in some areas or increase your income in order to meet this goal.
However, if you don’t have a budget that clearly lists out your expenses and income amounts, you’ll surely miss some opportunities to reduce your spending in some categories. It will also be more difficult to track if you’re meeting your goal of paying off $2,000 of debt each month. When you become aware of where your money is going, it’s amazing how much money you’ll “find” to put toward your financial goals.
Having a budget is not about setting restrictions on your spending. It is about taking control of your money and giving each dollar a purpose.
What About You?
Participate in the conversation. What would you add to this list? In what ways has keeping a budget benefited you? Share in the comments below.