If you don’t currently have a budget, don’t worry because you’re not alone as only one in three Americans prepare a detailed household budget. Technological advances in financial services such as online banking have made it easier to track your money coming and going; so many people may feel it isn’t necessary to set a budget, make a spreadsheet, or balance their checkbook. Budgeting is also often thought of as boring or time-consuming when it can be as simple or as complex as you want it to be.
Perceived ease or difficulty aside, what a budget will do is teach you to value your money, keep you financially organized, and help you reach your long-term financial goals.
You’ll Think of Money as a Resource
If you were stranded in the desert for 24 hours and you only had 1 bottle of water, would you try and ration that water or would you drink as much of it as you wanted whenever you felt thirsty?
It seems like a silly question with an obvious answer, but many people don’t apply the same principles with their money.
Do you find yourself spending your paycheck long before you will see another one, or saving it and spending your money as needed? Start treating your paycheck as a resource, just as you would that water bottle!
When you create a budget (and stick to it), you begin to view money as a resource you should use sensibly, rather than disposable cash that you can get more of easily. While it may be true that you can always make more money, you should know where your money is going and assess whether you truly are spending your money in a realistic and responsible way.
Not only does having money allow you to pay for the things you require in your day-to-day life, budgeting to save money and stockpiling this resource into an emergency fund helps prepare you for the inevitable – and often unexpected – expenses in life.
It Helps You Avoid Financial Chaos
Do you know where your last $50 to $500 went?
Chaos is defined as complete disorder and confusion; if those are words or feelings you associate with your finances, then you might need a budget. What is financial chaos? It’s untracked spending, constant overspending, or feeling financially unprepared every time an expense pops up.
When you start a budget and make time for it in your daily life, 3 things can happen;
- You increase your awareness of your income and spending.
- You have better control of your finances because of your increased awareness.
- Your money-related stress is reduced because you are (or at least feel) more in control of your money.
Ultimately, by monitoring your finances carefully and regularly through a budget, it reduces room for confusion and disorder.
It’s Necessary for Your Long-term Success
You may have heard the phrase “If you fail to plan, you plan to fail”, and when it comes to money that saying is as true as ever. A budget doesn’t just allow you to track your spending, it can help you prepare for your future. Long-term financial goals such as buying a home or retirement can be difficult to accomplish without proper planning. A budget, even a simple one, can help you lay the groundwork for your financial plan or simply help you reach a goal like saving $5,000 in 5 years.
Budgeting is just like any skill – the earlier you start the better. No one wants to look back 1, 3, or 5 years from now and think that they could have or should have started tracking their money sooner.
A final note…
No matter where you are in your personal finance journey, a budget (or improving your existing one) is an important part of your overall financial health. If you’re not sure where to start and think an app would help, here’s 12 budgeting apps you can use to help manage your finances, and 30 others that may help you save money.