When And Why Budgeting Matters

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Budgeting matters because it helps us get on track and stay on track within our financial lives. Budgeting may not be for everyone. And if you think that budgeting will limit you, then theirs is a solution: adjust your budget. But just remember the purpose of the budget, which to keep your expenses in alignment with your income.


For many, budgeting is the first and solid step into organizing and optimizing your finances. It can be especially helpful if your finances are in disarray.



When Budgeting Matters


If you’re finding that you’re spending practically all of your paycheck before your next paycheck hits, then budgeting matters. And if you NEED your next days before you get paid, then budgeting matters.


If you’re finding that you’re using your credit card and are not able to pay off the balance in full in each billing cycle, then budgeting matters.


If you’re finding that you’re not able to save at least 10% of your paycheck into your savings, investing or retirement accounts BEFORE any spending, then budgeting matters.


If you believe you’re not reaching your full potential (i.e., not saving or investing enough) based on your income, then budgeting matters.



Why Budgeting Matters


As mentioned in the beginning, budgeting helps us to stay on track. Think about a train track. Sometimes the track is straight, sometimes, it goes up and down hills, sometimes it curves left or right. Regardless, the purpose of the train is to to get you from point A to point B all, while staying on its track. If the train falls off the track, that could mean danger.


Now think about your personal finance goals. You have to stay on your personal finance track to reach your personal finance goals, right? Your goals may include (1) retiring by the age of 55, (2) having your home paid off by the age of 60, and (3) having at least half of your child’s college tuition saved in a college savings plan by the time they graduate high school.


If you continuously go off track from this financial plan (e.g., decide to take  couple of years off from work when you haven’t saved enough, bought a boat or a vacation home while employing debt and an unreasonable interest rate), then you may not be able to achieve your goals, at least on the timeline that you’ve envisioned.


When you employ the practice of budgeting, you’re taking little steps each month to make sure you are spending and saving and investing wisely to move forward and stay on track to reach your goals.



Budgeting gives your transparency. If you’ve allocated $150 for the month to eating out at restaurants, you’ll become more aware of your ceiling. If it’s the 22nd of the month and you’ve noted that you spent $140, then you may strive to pack lunch for most of the remaining days or cook at home.


At the same time, you may realize that a $150 per month budget for eating out may not be aligned with my lifestyle. Maybe you like to go out more and can easily afford it. Maybe you can up this to $225 per month. Or you may realize that, hey I like buying ingredients and experimenting in my own kitchen. So you may decide to increase your grocery budget a bit and decrease your eating out budget from $150 down to $125 per month.


You decide what works for you, around the parameters of your income and that’s where the transparency kicks in. Budgeting provides this transparency because it allows you to account for the funds you have and gives you the ability to decide in advance how you choose to deploy those funds.



Budgeting Means Establishing Good Habits


Improving your health starts with establishing good habits. If you stress out about money, reducing the stress through budgeting can be a good habit.


Budgeting Helps To Reduce Stress. When the bills come in the mail, and you’ve budgeted properly, you won’t need to stress out about how to pay them. But what does budgeting “properly” mean?


Let’s say that that it’s May and your electric bill comes in at $150. You’re a little surprised and of course, pleased because in the winter months it was near $200. But after May comes June when temperatures will be warmer, your HVAC unit will need to work harder and your electric bill will ultimately be a bit higher.


Budgeting properly means to anticipate, estimate, or accounting word “accrue” for a higher bill in June as compared with May.


Also, you may be able to look up your electric bill online for June of the previous year and find out it was $180. So you should budget your electric bill for June of this year to be $180 as well. This way you’ll be able to set aside, or another accounting word “earmark” those funds for paying this higher bill and, in the process, lower your stress.


In other words, think of budgeting as a taking a vitamin that helps reduce stress. The more you take it, the better your chances of reducing stress.



Budgeting – When To Ease Off


Once you’ve established wise spending and consistent saving habits, you may not need to budget your expenses as closely. The purpose of the budgeting process may have been accomplished.


After a while, budgeting may become automatic and you may be able to budget in your head or on the fly with a simple calculator.


Even though I still use a budget because I am constantly trying to seek improvement, I know that others in personal finance are comfortable with their saving and investing percentages and, therefore skip the budgeting process.


Try my budgeting template as part of SMM’s Simple Templates to see if it works for you. I’ve been using it for years and continue to do so. It’s allowed me to save thousands of dollars and find numerous areas of improvement.




Join The Discussion:

  1. Do you budget your expenses?
  2. Have you budgeted in the past, but no longer do so? What was the trigger that made your stop?
  3. What is your most important takeaway from budgeting?





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Check out my simple, yet detailed Personal Capital Review here.