I didn’t have a budget until I moved into my first solo apartment in 2011.
OK. That’s only half true. It would be more accurate to say I didn’t have a physical document outlining the details of how much money I make and how it should be spent.
Up to that point, I did what I think a lot of people do: I kept track of it in my head. It was easy enough to do at the time – I was a student with a grand total of like, four bills, so it wasn’t as if I had a lot to keep track of.
But honestly, the main reason I didn’t have a physical budget is because the process seemed intimidating.
I didn’t even know where to start. So I didn’t.
And can I tell you something? That was…well, more than a little stupid on my part.
If you are a person who makes money, you absolutely need to have a budget. Thankfully, it’s not really all that difficult to get started.
Why you absolutely need a budget
There are many good reasons to make a budget. Here are five that I think explain why a having a budget is so important.
- A budget helps you establish your priorities.
The exercise of laying it all out – your earnings, your spending – provides you with the big picture vision you need to make big picture decisions.
- A budget helps ensure you can meet your needs
Are you spending your money in a way that ensures all your financial obligations are being met? Having a budget shows you where you may be falling short in this regard – and makes it easier to identify areas where adjustments can be made.
- A budget helps you prepare for emergencies
Budgeting isn’t just about your spending habits – it’s also about your saving habits. When you make a budget and stick to it, it makes saving easier. And having savings certainly makes it easier to weather the storms life throws our way.
(Wondering how much you should budget for emergencies? Check out this post.)
- A budget helps your identify problem areas
Looking to curb overspending? Does it seem like your money is always disappearing? Having a budget can help with that by showing you exactly where and how you spend your money. Identifying and dealing with problem areas also makes it easier to avoid added debt.
(Dealing with disappearing funds? You might have a problem with ghost money. Check out this post for more on what that is and how to deal with it)
- A budget helps guide your vision for the future
You’re not just budgeting for today or tomorrow – you’re also thinking about the future. Having a budget doesn’t just help you reach your current goals, but also the goals you have for your life down the road.
So, you’re ready to make a budget! What now?
First of all: congratulations! I hope you’re as excited for you as I am, but I know it’s more likely that you’re feeling a bit nervous about the process. There really is no need to feel that way; here are six tips to help calm your nerves.
It’s as simple as that. The first and most important step in this process is to just start.
You don’t need any special software or programs to make your first budget (unless you want to, then by all means, fill your boots). I have always used a simple Excel spreadsheet for our budgets. It’s completely unremarkable – no fancy tables or anything, just columns and numbers. I track what’s been paid by using the red highlight tool and…that’s about all I do. The purpose of your budget is to be able to view your finances in a way that makes sense to you. Don’t get so hung up on format that you put off the first step of simply getting started.
How much do you make? How does that compare to what you actually spend?
The first step after deciding to start is to get honest with yourself. It might take some time to really nail all this down and it may result in being surprised by some of the ways you spend you cash, but the more honest you can be about your spending habits, the more successful your budget will be.
Plan it or lose it
This goes along with being honest about your spending. While I’m not Every Dollar strict with our budget, I do make sure there is a plan in place for how we will spend our money when it arrives each pay day.
Having a plan for where your money needs to go once it arrives eliminates both guesswork and the temptation to overspend (since the money is already allocated elsewhere).
Check it regularly
Your budget should be a living document, particularly if you plan weeks or months in advance. Reality is things change: priorities shift, emergencies arise…things happen. And when things happen, it’s important to ensure your budget lines up with reality. Make a habit of checking your budget once in a while to make sure it’s still working for you. And if it isn’t…
Be open to change
Sometimes life throws a curveball. Sometimes your budget will need to change or be adjusted – and that’s OK! What’s important is that, by undertaking that work, you are remaining in control of your money, instead of letting it run you.
Don’t let setbacks get your down
Setbacks will happen. Plans will change. That’s life. When it comes to your budget, don’t get hung up on the negatives. Instead, celebrate the victories, learn from mistakes and hard situations and keep moving forward. At the end of the day, it’s just money. And there are things that are way more important than money.
I can’t stress this enough: if you’re making an income and paying bills, you absolutely need a budget. A budget provides a clear plan for your earnings and is designed to make your life easier – and keep you on the right path.
If you’re holding off because you’re worried it will be too complicated…just start. Your budget doesn’t need to be complicated or elaborate, it just needs to be easy to understand for you. Trust me: you’ll be amazed by the difference having a plan for your finances makes.
Do you have a budget? What method do you use? I’d love to hear your thoughts. Please let me know in the comment section.