Budgeting is no new thing, and I am not going to reinvent the wheel here, however budgeting is important and I don’t think enough people are doing it. A majority of people write off budgeting because they think it’s this boring thing that you have to do constantly, and they are scared to see the real numbers. They don’t want to put a leash on their current lifestyle. Which is fine, I’m not here to tell you how to live your life. If you don’t want to be working until your 65 (those that are 60 and reading this I sure hope you put some sort of plan into action) then budgeting is a great tool to start looking at the logistics. Unless you plan on winning the lottery or becoming some sort of mogul then you need a budget of some sorts in order to build a nest egg. May I remind you that the previous two scenarios still also require a budget in order to have a chance at keeping onto a fraction of the money you make/earn.
You may have noticed one of the scenarios I left out was having a high income. This actually doesn’t matter that much, and to be honest, if you don’t have good financial habits you will often end up putting yourself in a much harder position than you started in. In other words, broke students and people with low income are in a great position to start building these financial habits.
How is this possible? I hear it almost every week. ‘If I made more money I would be able to save more money’. That’s not entirely true. The more money you make, the more you are able to spend. If you do not have the discipline to put that same chunk of change away you have an increased potential on screwing up your current financial standing - if there is one. When you make more money, the bank sees you as a bigger customer. All of a sudden you are able to get a higher mortgage, a higher credit card loan, a line of credit, etc, etc. All of these tools can be used to help you increase your wealth, or they can bury you almost as fast as you got them.
There is a saying that someone who is much more brilliant than I came up with that I’ve stuck to ever since I was like 18. “Big hat no cattle”. Pretty simple, but I think it explains a high percentage of people in our ‘keeping up with the joneses’ world today. The Hat is the physical stuff. It’s the stuff that lets you show your ‘wealth’. It’s your $40,000 ‘sports car’ on your $36,000 salary, its your $600 suit that you put on your $5,000 visa that you haven’t paid off ever. The Cattle is the way you generate the income in order to buy your hats. If you have big hats and no cattle, you probably fit into the majority of people in today's world.
I could ramble on and on about how I think people in today’s world and people of my generation are screwing up their financial position, but that isn’t going to help anyone, so enough ranting. In fact I’ve probably already lost like 50% of my audience, but those that are still reading, here are 10 reasons why I think budgeting is important:
- You cannot lie to your budget.
- You get immediate feedback.
- It allows you to track spending.
- It allows you to see trends.
- It allows you to maximize savings.
- It allows you to make worry-free purchases.
- It’s easier to sleep at night knowing you have all your bills accounted for.
- There are no surprises.
- You can generate an income vs expense report whenever you want.
- It tells you the truth about your current financial standing, and shows you exactly why you are at your position.
You cannot lie to your budget
Well this should be fairly obvious. If you have something telling you how much money you can and cannot spend, you cannot fake yourself into believing that you can spend more than that. In other words it’s already told you that you are poor and not to buy that Smartwatch, it is now up to you to decide whether or not to buy it.
You get immediate feedback
Well you decided to buy that Smartwatch? Well now you know you cannot pay your internet bill. Better find out where you can sacrifice something else in order to read my shitty blog.
It allows you to track spending
Once you have been tracking for a few months, or even weeks really, you can start to see where you are spending your money on. You are able to decide if you really want to be spending 600 dollars every 2 weeks on getting drunk and buying 12 people shots. This allows you to…
See your trends
Trends are an amazing thing. It’s the same concept as when you were in grade 1 and asked to see the pattern. Except this time it's about your money, and it actually matters. You know that you eat out every Thursday and it’s way more than you want to? Make a small change, don’t get that side of garlic flavored truffle infused yam fries for $8.00 today.
Once you start making minor improvements you can start putting that extra money elsewhere. Hopefully this means savings, but hey I’m not here to tell you what to do. All of these small changes in how you spend your cash leaves you with a lot of potential to save big time.
It allows you to make worry-free purchases
Yes that’s right, I said it. I still go out and spend lots of money - when I earn it. In other words, if I go downtown and spend $600 on a mediocre time at a dive bar, you better be damn sure I’ve been saving up for a while to do that. And hey, because I’ve budgeted that money, instead of being hungover and broke, I’m just hungover.
It’s easier to sleep at night
This is probably one of the biggest benefits. I’m like 80% sure studies show that people that don’t need to worry about their financial position are able to sleep better at night. You don’t have to worry about making ends meet (maybe in the beginning but it gets better, trust me). You can always pay your rent on time, pay your phone bill, etc. It’s an amazing thing.
There are no surprises
By budgeting, you always know where your money is at. If you are budgeting correctly (more on this later), you should be putting money away for a rainy day. This allows you to adapt to anything that pops up in your life. Yes there are shitty things that happen to everyone (for example, if you live in the US and your healthcare sucks), but at least you are going to be more prepared than the average joe.
You can generate an income vs expense report whenever you want.
This is a great tool if you know how to use it. Its a report that shows you the bottom line in a time period. This is basically the financial report card. And yes this one is 100 times more important than the one you get at school, and no your teacher probably doesn’t know what the fuck it is.
It tells you exactly why you are where you are at
And lastly (not really lastly but more than 10 is less buzzfeedy) it provides a roadmap of how you got to where you are. You can see that over the past 3 months you went to Rotten Ronnie’s 25 times, which is $275.00 worth of Big Mac meals, which is why you cannot afford to buy 3-ply toilet paper today.
My next post will go into budgeting strategies, what I personally use, and other tips in getting a little bit closer to the financial goal(s) you want to achieve.