When most people hear the word budget, they get this feeling of being restricted. You may hear people say, “it’s my money, I worked hard for it, I’m going to spend it on what I want.” So, why have a budget?
You know what’s great? If you make your budget the right way you get to decide where you spend your money.
As I stated most feel a budget is restricting, in fact I grew up feeling that way. We couldn’t go eat with our friends because it wasn’t in the budget. I couldn’t get new shoes because it wasn’t in the budget. Growing up, I really hated the word budget.
Now, this isn’t a knock on my parents, financial literacy wasn’t taught in schools and there wasn’t as much access to information as there is today. But now, having to keep my house in order I see how a budget actually brings me financial freedom.
Control Your Money
So how does a budget let you decide where you spend your money?
John Maxwell says: “A budget is telling your money where to go, instead of wondering where it went.”
When you stop to think about that statement for a moment it really changes your perspective. Having this mindset really empowers you to have control over your money. Having a budget is having a plan.
This reminds me of another famous quote “If you fail to plan, you are planning to fail”. This is a quote attributed to Benjamin Franklin.
This is another powerful statement. Without a proper plan in place you will surely fail. A good contractor wouldn’t start building a house without having blueprints. So why would you live your life without a blueprint – a budget – for YOUR money?
Do You Overspend?
Speaking of money, do you know how much you spent on groceries last month or the last 3 months? Even though many still overspend here, most would have a pretty good idea as that is an expense most people review weekly.
But do you know how much you spent on eating out or at your favorite coffee shop over the last 3 months? Those answers might be a little harder to come up with without looking at your bank statement.
Did you know, according to a CNBC article the average household spends $7,400 each year more than those on a budget? That’s $143 per week more that people spend that they have no idea where it went.
These individuals fall into the second half of John Maxwell’s quote, wondering where their money went.
What could you do with an extra $7,400 each year? If you invested that each year for 30 years in a retirement account with a modest 6% annual return you would have put into it for $221,760, but would have over $600,000 in that retirement account. How much faster could you pay off your mortgage? You get the idea.
That example alone shows you the importance of a budget. Without a budget you could potentially be throwing money away.
Now, how do I make a Budget?
But does that mean you can’t spend money on things you want? Absolutely not! Over the next few articles we will look at different methods of budgeting so you can decide which one works best for you. Before we do that though, we need to look and see where your money went over the last 3 months. We will look at how to do that in the next article. I know, super boring. But this will set you up for success so you can decide where to spend your hard earned money.