Friday, August 16, 2013

Why do you budget? Or do you?

Pin It
001-26-1 photo 001-26-1.jpg

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 counterparts".

 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?

32 comments:

  1. I budget for everything. Well the things I can control. I keep two budgets one on paper where I write everything down that I can possibly think of and another paper one that is the next month in advance. Yup Im a paper keeping girl

    ReplyDelete
    Replies
    1. I'm a paper kind of girl too :) My husband uses a spreadsheet but I still write everything down in a big notebook:)

      Delete
  2. A very interesting post Lena. I budget. We have so little I need to know where every penny goes. We also save for holidays, fun stuff as well as important stuff too. M is a taxi driver and I budget his money to cover his bills throughout the year.
    Carolx

    ReplyDelete
    Replies
    1. I understand how you feel. We budget every penny right now too, and have been doing it for years, honestly. But I have separate "accounts" for holidays and extras like vacations (before the job loss, of course :) too.

      Delete
  3. Great post Lena! For us a budget (spending plan) is the only way to go. If we were to just fly by the seat of our pants I don't think it would be long till our pants would be down around our knees. A spending plan free's me from worrying about where the money is coming from for bills, food, and fun. I know on payday where our money should be going, it's fast and easy. Pay the bills, put back the spending $$ for food, gas,and extra's. We have yearly savings goals for retirement, EF, and vacation. Once I know our goal I break it down into pay periods. If you don't tell your money where to go it will get up and go on it's own! Still praying for your family

    ReplyDelete
    Replies
    1. Thank you for keeping us in your prayers, Debby :) I appreciate it!! That's what we try to do with our budget too. It's a little different now but before unemployment, every paycheck had things assigned to it, and whatever was left went towards savings, etc.

      Delete
  4. We do budget monthly. However, I've learned to give us some flexibility within out monthly budget. Even though I think we could be better at budgeting, we wouldn't be where we are without budgeting.

    ReplyDelete
    Replies
    1. I think, flexibility is the key to any budget plan. If it works for your family and gets you where you want to be, that's the way to go! And that's why I think some people are failing at controlling their finances - because they look at others who do this and not at their own situation.

      Delete
  5. We have tracked our expenses at various times, but haven't always had a daily budget. However, we always have had a good feel about our money and where it is going. Luckily, this has allowed us to have a good emergency fund, retirement accounts that are in order, and college that is budgeted or paid for. Our house is paid off and the savings account is good. None of this happened because we are rich. It happened because we knew where our money was and had a plan for it. Then we spent it wisely. I hope that this is an example, that while it may not happened overnight, over the years it is possible to be financially secure. So, I heartily echo what you said, what ever kind it may be, budget, budget, budget.

    ReplyDelete
    Replies
    1. You are a great example on how to do it right :)

      Delete
  6. I think people associate "budget" with having to follow strict rules and guidelines because you may not be good enough to reach your goals otherwise. They see them as restrictive, and an all-or-nothing (that is, you either budget and get restricted or you dont at all).

    I budget because I have very aggressive goals I'd like to reach in short periods of time, so I need the help and guidance from my budget to know I will be able to meet said goals. It is true that people are more willing to talk about what goes on in their bedroom than finances, and I've always found that extremely silly... especially since the people that are most afraid to talk finances with others, or seek help, are those that may need it the most and benefit from having someone help them along.

    ReplyDelete
    Replies
    1. I love that you said that people are more willing to talk about sex than money! So true :)

      Delete
  7. We don't budget per say but we know what is coming in & going out. It's hard for me to budget for groceries because of the way I shop, I am a stock up & sale person. I am fortunate that we live within about 5 miles of 5 grocery stores plus Target & WalMart so I look at the circulars & my coupons each week & if the sales are good like this week I will really stock up & spend a lot. Last week the ads were bad so I do no grocery shopping at all. Although we do not use an actual budget I do separate things out like we have a separate savings account for real estate taxes so that when they come due most of the money is there & ready to go. We also use credit cards but they are paid off every month & we earn free gift cards & cash back on all our purchases so we put as much on them as we can from utilities to groceries. So we do not actually budget but we have several system in place that work well for us.
    Rhonda

    ReplyDelete
    Replies
    1. I try to set up some "stocking up" money every month for sales and extras (and canning :) And I also use a credit card for points. I have $110 there sitting right now that I hope to use towards Xmas. But credit card was never a temptation for us. We use it sparingly and only when we have money to pay it back.

      Delete
  8. Hi Lena, I came over from No More Spending! The main reason I budget is because of cashflow issues. I am paid biweekly and I have monthly bills. But I also have some annual and irregular bills, and at one time I didn't plan for them. Problems started to accumulate, for example, I would wait for a tax refund to pay off a property tax bill, or I would avoid going to the dentist for a year because I could never quite do so "this pay." Finally I started projecting my anticipated expenses a whole year ahead, so I could save a monthly amount toward each annual or irregular bill. I know it sounds simple, and I don't know why I put it off so long! I guess it was more fun to pretend that I had "extra" money each payday, and spend it, rather than thinking, "I need to start saving for next year's car insurance."

    ReplyDelete
    Replies
    1. Thanks for stopping by :) The reason why we got smarter with our finances were pretty similar to yours - unexpected bills and other bumps on the road. I never thought that our savings would be used towards surviving unemployment but I'm glad we were prepared. I wish somebody would teach us a real finance class on personal money management when we just got married :)

      Delete
  9. Fabulous post, Lena! We track all of our spending and I try to keep it up to date and do it once a week. I'm not really great at saying we will only spend x amount of money on things and sticking to it, but it helps that we track our money. Also, my husband's take home pay varies check to check, so a strict budget doesn't work as well for us. I've gotten to know what is necessary for our expenditures and can gauge when we are spending too much on things and when we need to cut back. Essentially, we spend as little as possible all the time, so that when we do have a little bit of extra money, we can purchase things for the house, and go on vacations, etc. Also, we have our automatic savings for retirement, missions, car fund and emergency funds taken out monthly, so that money is always being saved.

    ReplyDelete
    Replies
    1. I didn't realize your husband's salary varies! We still have a small automatic account for Xmas savings but others were liquidated due to unemployment (we were yet to start saving for retirement other than 401K, Same with the mission funds...) I can't wait to start planning and saving again!

      Delete
  10. Hello Lena
    Now this is an interesting post.
    I definitely budget and have always done so .... nope ....I tell a lie....when I first got married I didn't I had no idea! I learnt though, when you have nothing, a babe on the way living in a foreign country and not able to work due to that and depending on one wage you learn to budget. However for many years though thanks to a successful business we didn't have to worry so much about having to budget. Sigh!!!! BUT nothing is forever and this recession has hit us badly as it has so many other people here in Spain. My husband's firm closed down and he had to take early retirement. We now rely on my income and his pension so we have to budget. I'm not whining these are just the facts. I count myself as one of the lucky ones there are many people here in far worse situations. We manage because we budget and I feel quite proud that we do get by.

    I consider some people do not budget when they should because they live in a dream world and do not want to face reality.


    Giveaway into its last week....pop in and enter if you have time Lena :-)

    keep well

    Amanda :-)

    ReplyDelete
    Replies
    1. I'll check it out! Thank you, Amanda :)

      Delete
  11. Very sound advice in this post! I too budget and have a plan. Budgeting got us OUT of debt and is keeping us out of debt.

    I am forever amazed at how people think budgeting is a money DIET and they approach it the same way they would that New Year diet. They never tackle one thing at a time, make HUGE changes and then get frustrated at the first small mistake or failure. It does NOT have to be that way!

    Oops, I need to step down off the soapbox and perhaps go write my own post, lol...

    ReplyDelete
    Replies
    1. You know what they say - the only diet on earth that actually works is the one you can live with for the rest of your life. I think, it perfectly applies to budgeting. It is a money diet but not a New Year resolution :)

      Delete
  12. Lena,

    I am a single earner with five people to support. One daughter is beginning college, two are in high school. My husband is a home body and does what he can at home. I have a paper budget that I've used for years, along with my financial goals written out, with added dates for completion. We have been using our paper budget for a long time, and I have it worked out as far as a year ahead of time, and using each month as a new start. I have August obligations paid. Since I get paid every two weeks, I will start on September's budget this week coming. By the first pay check in September, I will have everything paid for that month, and will work on October. I always make a deposit into my savings account every two weeks.

    ReplyDelete
    Replies
    1. Sounds like you have a great plan that works for your family! And that's what budgets are for - to have goals for the future and control (as far as it's in our hands!) now.

      Delete
  13. We keep a budget so we can always pay our bills on time and not have to worry about them. Paying on time does not seem to be a priority for everyone but it is for us.

    ReplyDelete
    Replies
    1. I agree! It is a priority for us too!

      Delete
  14. Lena, we budget as well. Do we always stick to the budget? No...but it does help us prioritize. We are better about making our money stretch between pay periods. I do think all households should have one. Seeing it in black and white changes our perspective on how we want to spend.

    ReplyDelete
    Replies
    1. I absolutely agree with you about the perspective it gives. We don't always stick to our budget but, I think, we have a healthy balance most of the time!

      Delete
  15. people that don't budget usually spend what they make. Let's say the make $200 a week, they'll spend that. But if the make $300 a week, they'll spend that. That leaves no room for saving in case something happens (tire to be replaced, medical bill and so on). We actually live on a budget that is set lower than what my husband makes. This allows us to never be short on money. Yes we could afford to eat out at least once a week, but we choose to only eat out once a month. We make a lot of choices like that. A budget is a great thing. My parents never did have a budget on paper, but lived frugally. as an adult, I felt the need to have a "plan" and stick to it.

    ReplyDelete
  16. This is a wonderful post!!!!!! I budget so I can sleep at night. When Dennis and I were first married, we had debt. We had a mortgage, a car loan and credit card debt. I watched a show on budgeting and the man asked, "where will you be financially in 5 years?" That struck hard. I knew that we would be sunk. I have fought to control our money ever since. We still have a house payment but only have a few years left. We have no car payment or credit card debt. We have a small savings too. I still worry as we have a senior in high school and a senior in college but when I stress too much I just look at how far we have come.
    Thank you for the post!

    ReplyDelete
  17. we have had more money going out than coming in. Hoping after our mortgage finishes next week we will be a little better off.

    Saying prayers that your dh finds work soon,

    Gill

    ReplyDelete
  18. How in the world did I miss this fabulous post!? :) Yes, I budget like crazy!! August we had a very loose budget due to our homestay girl, but now it's back to the books! Every cent counted coming in & going out!! :)

    ReplyDelete

Thank you so much for your comments. I appreciate each and every one of them, and will try to answer as soon as I can. All replies will be in the comment section, please check back to read them!

Related Posts Plugin for WordPress, Blogger...