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Raise your hand if you’ve ever spent more than you earned.
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See...you’re not alone! In fact, almost half of Americans say they are spending what they earn or more than they earn.
Many people who overspend are like my younger self. They have enough money to pay their monthly bills. But they struggle to cover non-monthly or unexpected expenses. Why is that?
Because they’re not planning ahead. It’s easy to remember that you need to budget for groceries and gas every month. Or that you need to budget for your rent/mortgage and your utilities.
But it’s easy to forget about needing to budget for contacts that you'll need in a few months. Or about budgeting for car maintenance when your car is currently running fine.
Eventually, I learned how to get a grip on my true expenses so that I could make a realistic budget that allowed me to plan ahead. Now, when I need to buy contacts or I need to fix my car, I have the money. Gone are the days of my money controlling me!
If you’re interested in learning how to take control of your money, I'm sharing six reasons why it's essential that you have a budget.
Budgeting Helps Ensure You Plan for All Expenses
Most people are able to cover their regular monthly expenses (like housing, gas, food, and utilities). But they forget about things like car maintenance, medical expenses, gifts, and vacations. This is because they usually don’t happen every month.
When you don’t plan for all expenses, you’ll likely have to go into debt to pay for those irregular or unexpected expenses. And, if you can’t pay the debt off right away, you’ll start paying interest and it’ll be harder to get out of debt.
But, when you create a budget that includes those irregular or unexpected expenses, you’ll be prepared for all your expenses. And you’ll have the money set aside to pay for them. This is what You Need a Budget (or “YNAB”) calls "embracing your true expenses". (If you're interested in an easy way to manage your budget, I highly recommend YNAB. I've used YNAB for years and it makes budgeting so easy!)
And, because you’ve embraced your true expenses and have budgeted for them, you won’t need to go into debt in order to pay them.
- Related Post: How to Utilize Sinking Funds to Improve Your Budget
Budgeting Allows You to Stop Wasting Money
When you’re spending a little here and a little there, you might not realize how much you’re actually spending on a certain expense. If you were to add it all up, you might be surprised how much you’re really spending.
This is especially true for things like food, entertainment, and alcohol. You buy them many times throughout the month and each purchase doesn’t seem like much. So it’s easy to overlook how much you’re spending in total.
Once you figure out how much you’re spending, you can face the reality of where you’re spending more than you thought. Rather than burying your head in the sand, you can find solutions that will save you money.
For example, maybe you realize that you buy impulse items every time you go to the grocery store. So you decide to only go shopping once a week and stick to a grocery list.
Or, maybe you see that you eat out for lunch almost every day. So you decide to bring lunch to work at least once a week.
By figuring out how much you’re actually spending, you can create a realistic budget that you’re more likely to stick to. And, you can make small changes to your budget that will keep you from wasting money without realizing it.
Budgeting Allows You to Create a Flexible Plan for Your Money
The word “budget” invokes many emotions in people. It might make you want to run screaming because it makes you feel caged or restricted. You feel that you’ve worked hard for your money and you want to buy whatever you want.
It might make you want to pull the covers over your head because you’ve tried budgeting before and it didn’t work. Maybe, you made an arbitrary and unrealistic budget. But, when you overspent, you felt like a failure.
But budgets don’t have to be restrictive or scary. Budget is defined as “an estimate of income and expenditure for a set period of time.” In short, a budget is a plan for your money.
When you create a plan, you make decisions based on both needs and wants. Your budget will need to include such necessities as food, housing, utilities, gas, etc.
But, you also get to include things you want, like vacations, a new purse, or a kitchen remodel.
And, just like any plan, it can be changed as needed. When a new expense arises or the cost of one expense changes, you can adjust your budget accordingly. You Need a Budget (or "YNAB") calls this "rolling with the punches". (If you're interested in an easy way to manage your budget, I highly recommend YNAB. I've used YNAB for years and it makes budgeting so easy!)
When you roll with the punches, you can be flexible and handle overspending as it occurs. Now, instead of feeling guilty or wanting to give up, you simply plan, follow the plan, and adjust the plan as needed.
Budgeting Helps You Move Towards Financial Freedom
Every year, financial resolutions are at the top of people’s New Year’s resolutions. But, it’s hard to reach those goals if you keep doing what you’ve been doing.
Creating a budget allows you to make the changes necessary to achieve your goals. And, when you know where your money is going, you can find ways to free up money to put towards your goals, big and small.
For example, let’s say your goal is to save enough money for your family to go on a cruise. It’s something you and your family really want to do. With a budget, you can see where you might be able to cut back so you can put a little extra towards that cruise.
For me and my husband, we’ve found several places we can cut back in order to put extra money towards our student loans. Watching our total student loan debt go down each month really helps to keep us motivated. And it helps make the small sacrifice worth it!
Additionally, budgeting might make you realize that you need to earn a little extra money to reach your goals faster. When my husband and I were saving for our wedding, we both worked extra jobs to help us save faster. And we continue to find ways to bring in extra income now in order to pay down our debt faster.
Budgeting Reduces Stress
Almost 75% of Americans face financial stress. This stress comes from worrying about things like paying the bills, paying down debt, saving for retirement.
Financial stress can affect your health and your relationships. You’re more likely to overeat, drink, or smoke. Stress can increase your chances of a heart attack or depression. And money issues are one of the main causes of fights in relationships.
When you create a budget that accounts for both your monthly and irregular expenses, you’re setting aside money in order to cover all your expenses...no matter when they occur.
So, when your car breaks down or the holidays come around, you don’t have to worry about whether you have the money to pay for it. You have so many other things to stress about...how to pay your expenses doesn’t need to be one of them!
Budgeting Lets You Make Informed Decisions
When you don’t know how much you spend or have a plan for your money, you’re in the dark about your money. How do you make decisions on what to buy or how much to spend? Being in the dark makes you more likely to overspend and go into debt.
But when you budget, you know how much you have to spend on all your expenses. You can easily determine whether you have the money to go out to dinner or plan that vacation you’ve been wanting to go on.
So, instead of hoping you have enough money, you know whether you have enough money. And you can make an informed decision about whether to spend your money.
Budgeting gets a bad rap. But, in reality, it’s one of the best tools for taking control of your money.
With it, you can ensure that you’re not overlooking an expense or wasting money. You can use it as a plan for your money that can be flexible as your needs and wants change. And it can help you reach your goals and decrease your stress.
What has been holding you back from budgeting?