It seems like no matter what, people always find a reason to avoid budgeting. For many, budgeting is a daunting word that is too scary and complex to attempt. For some, it is a necessity that is blatantly ignored due to lack of time. For a lucky few, it is considered a “waste of time” given their high income.
There are a million reasons not to budget, but budgeting should be something every person does. Let me repeat that. Budgeting should be something every person does! No matter who you are or what your financial situation is, you need a budget.
Here is why:
1. Protecting Your Life
Let’s start with the obvious one- Money is a necessity to live. Without it, most people cannot obtain their basic life necessities (Food, water, shelter, safety, etc).
If you are someone who is struggling financially, a budget is an important guiding force to make sure you are spending on the things you need to survive.
2. An Emergency Fund
Some of us are blessed to be in a financial position where we do not have to worry too much about #1. We may feel comfortable in our ability to put food on the table or a roof over our heads. This is a luxury that we sometimes take for granted. If there is one thing COVID-19 has taught us however, is that life can change quickly and this luxury can disappear fast. Jobs can be lost quickly and expenses can rack.
Having a false sense of financial comfort without an adequate backup plan is a risky game that no one should play. This is why it is important to save some additional money via an emergency fund (if you have the means to). This emergency fund is something you can tap into in case you were to lose your income source or suddenly need more cash than expected.
The best way to create an emergency fund is to master the art of saving. A budget can help you do this.
3. Advancing In Life
#1 and #2 are focused on making sure our lives our protected and necessities handled, but I am sure everyone wishes to be in a financial position where they can focus on obtaining things just beyond the necessities. This is where the power of budgeting shines bright. If you can save beyond what you need and beyond your emergency fund, you have the potential to improve your or your family’s future wealth and opportunity. Investing in things such as education, retirement (401k), stocks/bonds (if you know what you are doing), and entrepreneurial opportunities are all avenues that one could take to better the prospects of their financial situation.
Getting to a financial situation where you feel safe and secure, and have the ability to invest in your future, requires a good financial plan/budget.
4. Money is a Resource
Where people fall off from budgeting is when they feel like they have it all. Life feels good, emergency fund is intact, education paid off, and plenty of savings to invest further. Why budget? Well, this is where the philosophy of money kicks in. It is so easy to forget that money is a resource. No matter how much we have of it, it is still a valuable resource to the world. How we use that resource can shape the world.
I’ll never forget meeting Ker, an aspiring student in the country of Laos, who told me he was working double shifts to try and save for college. When I asked him how much his tuition was he told me $120 a semester! I was shocked. If I skipped even just one dinner out in New York City (where a bill can be around $50-$100+) I could help pay for a child’s tuition in another country. How crazy is that?!
If there is one thing about money that stands true no matter what your financial wealth is, every dollar spent has an opportunity cost. In other words, every dollar you spend somewhere has other potential uses. While I’m not saying you have to donate your excess money, you should at least be mindful of where you do choose to spend it. Is a daily purchase of coffee really making you happy? If so, maybe it’s a good use of your resources, if not, maybe you could use it in a more impactful area of your life or another.
The more excess we have, the more we tend to waste. By budgeting, you can see where you are allocating your money (resources) and if that fits your life philosophies and goals
5. Rich People Can Go Broke Too
Last but not least, I’d like to quickly point out that even if you are very rich (whatever that means to you), you can go broke with excess spending very quickly. How many times have we seen stories of famous athletes, actors, or celebrities going broke despite earning millions of dollars? It may sound unfathomable to us that this could happen, but the snowball effect of spending recklessly to enhance our lifestyles can be dangerous. Don’t believe for a second that just because you make a lot, you can’t go broke.
We all need control and restraint no matter what we earn or make. A budget is there to keep you in check, even if you are a multi-millionaire
Summary
Long story short, budgeting is for everyone. It may not always be the most exciting thing, but I have found joy in refining my spending to focus on my points/areas of happiness (maybe im just weird!). People sometimes assume that a budget means less spending- It doesnt always have to be. A budget is just a feedback loop for money. Outline a plan, see how you do against that plan, and make changes as you see fit.
