With our peculiar financial situation right now, I think, the most common question we get from other people is "How are you doing it?" meaning, staying afloat financially. To this, my answer is always a "budget".And honestly, I was really surprised how few people actually keep track of their money. It almost feel like budget is a swear word of some sort! It's bothersome and makes people very uncomfortable.
According to a poll from Gallup, only 32 percent of Americans have a monthly budget, and just 30 percent have long-term financial goals. Even more surprising is a statement that "those with at least some college education, conservatives... and those making $75,000 a year or more are slightly more
likely to prepare a detailed household budget than are their
In a way, my husband received a confirmation of this statement when he had a recent conversation with somebody in a similar position with us. This individual has been out of work for a few months, relying on assistance and random jobs. But when they started talking about specifics, that person confessed that he has no idea what their month-to-month expenses are. It absolutely blew my mind that somebody who hasn't had a full-time job for some time, doesn't know where his hard earned dollars go!
As I was pondering about it, I came up with a few ideas why budgeting might be a good idea:
~You don't budget because you can afford it (or you think that you can)~
First, it's important to understand that having a budget doesn't necessarily mean to have a formal budget spreadsheet or anything like that. What works for some people doesn't work for others. To me, having a budget is knowing what's coming in and what's going out (it doesn't just include expenses but also savings and investments). But when I hear people saying that they tried every budgeting technique under the sun, and nothing works, it makes me wonder how determined they really are. To be honest, I think many people are scared to face the truth. I had a situation not long ago when somebody asked me how they can save some money because they received significant unexpected bills. But when I proposed a budget plan, the response was that they didn't really need that. Instead, they could, probably, save some money by cooking at home more and shopping sales. Grandly, you will save tens and sometimes even hundreds of dollars by making better health choices and checking your weekly ads but it will take a LONG time to pay off thousands of dollars of debt if you don't have a plan on how to do it.
And I honestly believe, the more money you make, the more "needs" you have. I've seen it in our family with every single raise :) On the other hand, when you lose a source of income, you surprise yourself at how creative you become with what you have (again, true story!). But I have personally met people who make triple digits and still have debt. It's not because they couldn't pay it off (and often, very quickly) but because they didn't feel a need to do so. They felt they could always afford to do it later... which wouldn't sound surprising, but it's not always the case!
~It helps to know how healthy your finances are~
I've heard many times when people said that they don't have time for budgets. Let me get this straight! You are so busy making money that you don't have time to know what you are spending it on? I don't mean to sound harsh but, honestly, it doesn't make any sense. Those people who finally made the commitment to get out of debt, often were surprised to know how much debt they've actually had. It's especially scary if you face a big financial downfall (like losing a job, totaling a car, major unexpected house repairs or medical bills), and you don't know where you are financially. Creating a plan/budget allows you to have more clarity. Which brings me to the next point,
~It helps to set up goals and actually reach them~
Whether you want to retire early (or even be able to afford to retire), to pay off debt, to save money for a vacation, you need to have a plan. I had a conversation with a very good friend of mine last week. Both her and her husband have pretty good jobs and no kids. She was telling me how they wanted to save a certain amount of money over summer but they were nowhere close to their goals. Unfortunately, they've never had a plan. There is a great difference between a desire and a goal. When you have a plan, you know how much money you can actually set aside. It also teaches you accountability and discipline. The same friend was also telling me that they spend too much money on food but when I asked how much, I received a very general answer. Then she said that they probably need to just set $100 a month and stick to it. My response to that was: more than likely, you'll fail. Why? It is possible for a family of two to live on a hundred dollars a month but when you are used to spending, let's say, three times more than that, especially if you don't know how big the difference actually is, it will either be a very miserable month (and this "budget" strategy will fail) or you would really have to limit yourself - which again brings to a very unhappy month. Instead, I recommended that she track her usual expenses for a month and see how much they actually spend. And then see what they can trim and what other things they can implement (like avoiding food waste, planning for leftovers, creating a weekly/monthly menu, shopping less often, etc.)
~It helps to prepare for a rainy day~
Even though talking about money is usually a tabu, it changes when somebody loses a job. And I can't stop telling people to start preparing while they can. It's way too naive to believe that nothing will ever happen to you. Honestly, the emergency fund should be a priority.You never know what the future holds. In the last six weeks (since my husband was laid off) I especially learned to appreciate it. We never thought he would be laid off - his job seemed VERY stable - but I'm glad we were prepared, at least somewhat. A nice cushion of emergency fund will give you peace of mind when the unexpected occurs.
~It gives you some wiggle room~
It might seem that budgets are restrictive but in reality they give you a lot more confidence and wiggle room. It's important to set aside some "fun money" because, well, sometimes you need to have fun and to spoil yourself for all the hard work you are doing day to day :) Of course, it really depends on your financial situation how much money you can save for fun. But even going out for ice-cream can make life so much brighter. As long as you are responsible, having fun can actually be enjoyable and guilt-free.
Budgeting is a process, ever changing and evolving. But it also can be a rewarding thing (no pun intended).
So why do you budget? Or why not? I want to hear all ideas :) What works for you in handling your finances?