5 Reasons Why You Need a Budget TODAY!

According to the CFP board, nearly 60% of people in the US do NOT track their expenses and 40% have NEVER made a budget. Making a budget can seem daunting and even confusing. Making a budget and tracking against it will reveal where your money is actually going - that's scary for a lot of people. But budgeting is a foundational step on a journey toward your goals. It is the core tool in managing your money on a monthly basis and it can complete change your mindset and emotional state around money. Here are 5 reasons you should start budgeting today!

Have a plan that aligns with your goals. Whatever you want to achieve, don't let your financial habits be a roadblock. Setting a budget allows you to decide where your money is going and assess if that aligns with your life goals. As important is tracking against your budget. Whether this be through a spreadsheet and bank statements or one of the numerous personal finance app (we prefer monarch) - it really doesn't matter. The core idea is knowing whether your actual spending is aligned with your plan, and whether your plan aligns with your goals.

Make your spending intentional. So now that your budget exists and you know how much you have to spend on each category, how does it impact your day to day? You should be checking periodically on where you stand against your budget. But you can also be more intentional with each spend decision. Do you want that new set of golf clubs? If it's not in the budget, is it worth delaying your life goals? Maybe it is in the budget, but it would drain your fun money. Is it worth draining all of the money you can spend on fun this month? The answers to these questions will help you be a lot more intentional about which purchases will provide you happiness in the long term.

Reduce your stress, anxiety, and guilt.

Money is simply a tool to build the life you want. I have yet to meet the person that is looking to add stress, anxiety, or guilt to their lives. Stress and anxiety are heightened when you're walking in the dark. Not having a budget is walking in the dark when it comes to money. You don't know where you going or where you really even are in the moment. Your budget provides the light that lets you know where you stand and what the road ahead will look like when you take on step at a time.

Guilt also has free reign when you're operating without a budget. We most commonly see this when people are spending their fun money. "I don't know if I can afford it?" "Do I really need it?" Those questions are really hard to answer without a budget - and not knowing the answer is where the guilt of wanting to make these purchases comes in. When you've budgeted your fun money - no guilt needed (as long as it's within the budget). You'll buy things that make you happy with comfort, knowing that your goals haven't been compromised.

Prepare for the unexpected.

As hard as we try to prepare, sometimes the unexpected just happens. A budget can't tell you exactly what the unexpected will be, but it can help you prepare for the financial impacts. A budget helps you create margin in your finances that you can put toward an emergency fund or any other type of savings. While a medical emergency is never going to be easy to deal with, it will be a lot easier if you have your deductible or maximum out of pocket spend in a savings account. Planning to create that margin that funds that emergency account is a core part of the budgeting process.

Manage and avoid debt.

Debt can either be a wealth building tool or a monster in your financial life that eats up your margin rapidly. While something like a mortgage allows you to buy a house that will appreciate over the life of the loan (and replaces a non-asset producing rent payment), consumer debts like credit cards almost never provide any return. How does a budget help you manage and avoid debt? A couple of ways.

First, a budget should be built to put margin in your finances. In other words, your budgeted expenses will be less than your budgeted income. If you're going into debt because your expenses are too high, your budget will effectively be a plan to reduce your expenses to below your income (ideally by at least 10%).

Second, as mentioned before, your budget will put you on the path to funding an emergency fund. If your debts before were coming from the unexpected, your emergency fund will help you cover those expenses and avoid going into debt to cover them.

Finally - if you're already in debt your budget will lay out the plan to use your margin and wipe out your bad debts as soon as possible. The best part about this; the less debt you have, the lower payments. Lower payments means more margin. More margin means faster debt payoff or more security. It's the most rapid version of compounding returns that we see for most people.

Do you need help creating your budget? Contact us here today to set up a free 15 minute consultation!