Why Should I Make a Budget?

Santri Alat - Why Should I Make a Budget? - You say you know where your money goes and you don’t need it all written down to keep up with it? I issue you this challenge. Keep track of every penny you spend for one month and I do mean every penny.

You will be shocked at what the itty-bitty expenses add up to. Take the total you spent on just one unnecessary item for the month, multiply it by 12 for months in a year and multiply the result by 5 to represent 5 years.

That is how much you could have saved AND drawn interest on in just five years. That, my friend, is the very reason all of us need a budget.

If we can get control of the small expenses that really don’t matter to the overall scheme of our lives, we can enjoy financial success.

The little things really do count. Cutting what you spend on lunch from five dollars a day to three dollars a day on every work day in a five day work week saves $10 a week… $40 a month… $480 a year… $2400 in five years….plus interest.

See what I mean… it really IS the little things and you still eat lunch everyday AND that was only one place to save money in your daily living without doing without one thing you really need. There are a lot of places to cut expenses if you look for them.   

Set some specific long term and short term goals. There are no wrong answers here. If it’s important to you, then it’s important period.

If you want to be able to make a down payment on a house, start a college fund for your kids, buy a sports car, take a vacation to Aruba… anything… then that is your goal and your reason to get a handle on your financial situation now. 

7 Reasons You Should Budget: Why Is Budgeting So Important?

1. Budgeting Can Help You in an Emergency

Your roof caved in, thanks to that blizzard. Your regular paycheck suddenly disappeared, thanks to those hard-hearted corporate bean counters who ordered job cuts. Your kid broke his ankle, thanks to that fall out of the tree.

Unforeseen nasty expenses like those (and any number of others) can catch you off guard, but there is a way to predict them: add a line into your family budget that says “emergencies.”

You can pretty much count on them cropping up during times when you can least afford them. Coincidence? Fate? Just your dumb luck?

A budget that includes an emergency fund takes luck (or lack of it), fate, and coincidence out of the equation. With an emergency fund that can cover your living expenses for anywhere from three to six months, it won’t be so financially painful to re-roof the house, or to conduct a thorough search for your next job (the right one this time), or to get your tree-climbing youngster’s foot in a cast (though that’ll be painful for the poor kid even if it doesn’t hurt your wallet so much.)

Including an emergency fund in your budget doesn’t have to be a significant drain on your resources. It might take a little time to get it flush enough to last you for those six months when you really need it, but a budget will get you there by helping you commit a certain amount to your emergency fund every week, even if that amount is minimal.

2. Budgeting Can Help with Retirement

What do you hope to do in your retirement? Travel? Finally learn to dance? Babysit the grandkids? Do absolutely nothing? Live like Snoop Dogg in an Adirondack chair and a smoking jacket on the beach, popping the top on a Corona Extra? (Oh, wait. That’s his television commercial persona. Full disclosure: A certain writer probably watches too much tube.)

Do you want to be able to stop working even before you reach your golden years? How much monthly money will you need when you aren’t punching a time clock any longer?

If you already know the answers to those questions, great. You can build the precise savings you’ll need into the budget you’re creating right now.

Most people, though, don’t have those kinds of specifics in mind yet. They just know they’ll want to be saving enough for retirement. A budget can handle that, too. It’ll help you figure out how much you can afford to contribute on a regular basis to a 401k or an IRA  at any stage of your financial life, and then it’ll help you keep making those contributions.

If you stick with it, those retirement funds will be there for you when the time comes to, as Snoop says in the commercial, “start living the fine life.”

3. Budgeting Can Help You Fix Bad Spending Habits

You might not want to admit that some of your spending habits aren’t helping your financial well-being. They’ve been with you so long that they’re part of the furniture of your life. Movies. Streaming services. Regular nights out. A kneejerk urge to have the best of the best of everything. You know, like a daily almondmilk chestnut toasted latteccino (yes, that’s a totally made-up drink) at the high-priced coffee shop on the corner. Not to mention the on-the-spot impulse purchases – headphones, sneakers, sweaters, sports jerseys, earrings and assorted tchotchkes – that your credit cards make so easy and convenient. All those hats,  You had to have ‘em, right?

A budget will help you consider a different answer to that question. In many cases, the answer will be: No, you don’t have to have ‘em.

The first step in breaking any bad habit is recognizing the problem. When a budget asks you to detail and itemize the decisions you make about how to spend your money,  those taken-for-granted expenses will come into focus.

Fixing your bad spending habits might seem hard. You’ll likely have to make some difficult choices. But your budget doesn’t have to be totally uncompromising. You might still be able to buy a new car, for example, but your budget might only give you room for a Kia rather than the Tesla you’ve been coveting. And budgeting might still allow you to frequent your favorite java shop … as long as you can order  a simple delicious coffee rather than that pricy, exotic other thing.

4. Budgeting Gives You Control of Your Finances

Knowledge is power. You’ve heard that, right? Well, a budget keeps you in the ‘know’ about how much money you have, how much money you’re saving, and/or how much you might be over-extending your resources. In other words, budgeting puts you in charge of what you can afford and when you can afford it.

Maybe you’ve been having difficulty paying your credit card bills on time. Maybe the beach vacation you crave seems way out of reach. Maybe the holidays put an excessive strain on your already-stretched cash on hand. When you don’t control your own financial life, you can be powerless to stop spiraling deeper and deeper into a money-you-don’t-have hole. Getting out of debt can feel like an impossibility.

Saving money with a budget gives you the knowledge, and thus the authority, to change that. Knowing how much you’re spending and prioritizing what you’re spending it on, compared to the amount of money available to you, eventually will lead to financial independence. And that’s a powerful feeling.

5. Budgeting Ensures You Only Spend What You Can Afford

We mentioned this earlier: A budget helps you decide whether you should buy something. Without a budget, those decisions can be driven by less financially sound factors like, say, the presence of a credit card burning a hole in your wallet or purse that will let you have that thing now, whether you can pay for it later or not.

In fact, credit card debt is the single biggest problem among people who are in money trouble, and it’s getting worse. The average credit card balance for Americans late in 2022 was approximately $6,000, according to Forbes. That’s about 15% more than it was in 2021, the largest year-over-year jump in more than two decades. Clearly, a lot of spending decisions these days aren’t based on affordability.

So, think of a budget as a sort of governor on your spending. It will regulate your decision-making in a way that steers your financial well-being in a positive direction. You’ll know how much you can afford to spend every month because your budget is showing you how much you’re making and how much you’re saving.

6. Budgeting Can Improve Family Life

It might take a while to convince the rest of the family that sticking to a budget will enhance their lives. We aren’t going to pretend that cutting back on the overspending is a quick and easy sell to kids who are accustomed to getting whatever they want at the mall whenever they want it. In the long term, though, a budget can help improve your domestic tranquility in a couple of important ways.

For openers, living within your means will be a stress reliever. Studies have shown that one of the main sources of clinical anxiety is debt. (We’ll explore that a little more in the next section.) It’s easy to see that reducing financial stress can mean a happier home life for everyone in the family. When your budget makes your debt go away, the arguments about money go away, too.

The second benefit of a budget to the well-being of a family is that it can help everyone understand the do’s and don’ts of dealing with money. It’s hard to overestimate the value of teaching your children good financial habits, even if it means using your own bad spending history (which brought on the need for a budget in the first place) as an instructive counterpoint.

Bringing the whole family into the creation and implementation of a budget gives each member a sense of participation and even ownership of your collective financial health. Regular discussions about the budget can make for productive communication opportunities, and those are always good things in a family. Everyone could take part, for example, in organizing a weekly money-saving dinner menu schedule.

7. Budgeting Can Reduce Financial Stress and Improve Mental Health

About that debt-related anxiety we touched on a moment ago … it can be particularly intense when someone in financial trouble is living paycheck to paycheck. If you don’t think your finances could survive an unexpected expense, it’s no wonder you might be losing sleep or experiencing panic attacks or outsized mood shifts.

Angst about finances can be related to physical problems, too. It can affect your blood pressure and your heart rate. It can impair your memory and cause weight gain. So again, reducing your financial stress can be a key benefit of a budget that brings you back from the depths of debt.

Your health, whether it’s mental or physical, and a budget? That’s a match well worth making.