The number of people we come across that don’t budget often surprises us. That’s not to say necessarily that they’re bad with money. Several are doing well financially. Take myself, the self proclaimed Budget BO$$. After years of managing the household finances, I learned we weren’t actually budgeting. We were forecasting a hope and a prayer and then tracking our expenses to see if Jesus took the wheel. Given our experience, we have an unequivocal response when people ask, “Do I really need a budget?” The answer to “Why is it important to have a budget?”, however, is more complex. We’ll discuss both below to help you become a budget boss in no time.
- Having a budget is important if you want to manage your personal finances efficiently and set yourself up for financial freedom
- A budget is a critical tool to help you reach your goals by focusing your efforts—and your wallet
- Having a budget can help you at any stage of your financial journey, whether you’re paying off debt or saving up for retirement
- A budget can offer you less stress and more freedom than simply guessing where your money goes or tracking your spending after the fact
- Budgeting isn’t about being controlled by your money, it’s about getting control of your money; it’s a focused plan that gives you the flexibility to spend where you’ve allocated your hard-earned dollars
- A budget isn’t a “set it and forget it” plan; budgets adjust over time as situations and goals change in different seasons of life
Is it important to have a budget?
Yes!
This concludes my Ted talk. Thank you so much for coming!
OK, joking aside, having a budget is important if you want to manage your personal finances efficiently and set yourself up for financial freedom. Is there anyone who doesn’t want that? We didn’t think so.
There is a reason we chose the name The Budget Brigade, and it’s not just because I’m a huge nerd. Everyone can benefit from having a budget, from Elon Musk to the Three Musketeers. Spaceships and sword repairs are expensive.
While around 75% of Americans already budget, that means about 25% don’t. This article is a plea to the 25% of Americans that haven’t jumped on the budgeting bandwagon yet. Strap on your bandwagon boots and prepare the launch.
Okay, fine. But why is it important to budget?
The following quote has always resonated with us:
You succeed at what you focus your attention and effort on
That is one of the biggest benefits of having a budget. Once you have a goal, a budget is a critical tool to help you reach it. This is why goal setting and budgeting are two of the earliest rungs on our FIRE ladder.
Budgeting can help in every aspect of your personal finances.
Let’s look at different rungs of our FIRE ladder and assess how budgeting can help light the fire under your ass to speed up your climb.
If you want to get out of debt, a budget can:
- help you find extra income to throw at your debt snowball or avalanche
- give you an estimated timeline of how long you have to embrace the suck
- track your journey to give you motivation
- show where you’re hemorrhaging money so you can stop the bleeding
- help you cut out unnecessary expenses to accelerate your debt-free journey
Once you’ve finished paying off debt (congrats!) and want to save up to buy a house, a budget can help you:
- see how much house you can afford by showing the margin available in your monthly budget to coverage the mortgage, taxes, insurances, repairs, and more (if no one’s warned you yet, home ownership is expensive)
- save for your down payment and closing costs
- plan for moving expenses
Once you’ve bought your first home, the budget is still your trusty friend, hanging out on the sidelines. Put it in, coach, it’s ready to play. A budget can help homeowners:
- plan for renovations or other improvements, such as landscaping, adding a fence, etc.
- set up sinking funds for upcoming expensive repairs, such as a new roof, fridge, or A/C system
- adjust for and cover insane hikes in their homeowners insurance and property taxes
If you want to retire, you need a budget that prioritizes saving. Once you can a clear freedom FIRE picture, use your budget to:
- plan the monthly savings amount you need to hit your FIRE number
- track your savings progress to motivate you to save more even faster
What if I don’t want a budget running my life by controlling my lifestyle?
People shy away from making a budget because they assume being on a budget means being controlled and limited in their lifestyle.
We have found the opposite to be true. When we got serious about sitting down before the first of the month and putting together a budget, we found we had a lot more to spend than we thought. Once my spouse and I agreed on a budget, I felt better about spending within the budget because we’d planned for it. This offered me less stress and more freedom than when I was guessing and tracking my expenses, because I never knew how much I was spending until it was too late.
A budget is less about being controlled by the evil plan man and more about seizing control of your finances. While the difference might be hard to distinguish, the first is a position of weakness and the second is a position of power.
Once you have control of your money, you open up vast opportunities versus when your money is bleeding out charge by charge at Amazon, on subscriptions you forgot you had, or on other expenses that don’t align with the goals you have for your future.
If you’re new to focusing on your personal finances, a budget is a microscope that helps you see where your money has been going. Think of it like a leak in a boat. Once you find the leaks, you can stop them. Then you can sail to shores made green by the discretionary income you didn’t realize you had.
We’ve been properly budgeting for years now. In our experience, our lifestyle didn’t plummet to the bottom of the abyss. If anything, we’ve been able to increase our lifestyle with some amazing bucket list vacations by focusing our spending on the areas that matter and cutting down spending on stuff we didn’t need that failed to bring long-term joy.
While it’s important to have a budget, it’s more important to stay on the budget.
There’s a big difference between having a budget and sticking to a budget, so we wanted to make sure we call it out before we draw to a close.
As mentioned above, until a few years ago, we made a loose budget once a year based on our annual projected income. Using this method, we ended up tracking our expenses after they happened versus telling our money where to go. We never got control of our spending this way. The problem?
A budget isn’t a “set it and forget it” plan. Budgets change over time—even month to month—as situations and goals change in different seasons of life.
When we forecasted our spending for the entire year at the beginning of the year, our budget didn’t account for:
- fluctuations in my self-employed income
- job changes or promotions with pay bumps during the year
- changes in our savings and spending goals
- adjustments to our expenses to help reach those goals faster
- home repairs and improvements that cropped up throughout the year, as they always do
- unscheduled car repairs
- medical expenses
By the time I reconciled our spending after each month, we usually discovered we’d blown our so-called budget out of the water like the MythBusters playing with dynamite.
We never stayed on budget because we didn’t pay attention to the budget until after the fact.
The zero-based budget helped revolutionize our personal finances and jumpstarted our path to FIRE freedom. By making a monthly budget and sticking to it, we saw amazing traction toward our goals. That, in turn, motivated us even more to stay within the budget, which continued to accelerate our timeline. We found other ways we could trim our spending and expenses within the budget to focus solely on our main priorities.
Begin budgeting today
If we’ve successfully convinced you why it’s important to budget, we’re happy to walk you through the process. Your budget for the first few months won’t be perfect, but we can almost guarantee you’ll quickly discover the leaks in your spending and the pinch points to focus on to accelerate your journey to financial freedom.
- Our budgeting station is your hub for everything budget related
- The zero-based budget explains our favorite budgeting method mentioned above
- Budgeting 101 covers the basics of budgeting
- Budgeting expenses gives examples of common expense categories and line items to break down your first budget
- Our budgeting and personal finance Facebook group offers motivation, support, and a hive mind to help you along your journey
Well laid out comprehensive post on the Why of budgeting.