I’ve seen a string of articles recently that have gone against the traditional wisdom that a budget is an instrumental part of any financial planning. In part, even my budget-loving self has to admit that there is some truth to this. Not everyone NEEDS a budget, but everyone can benefit from a budget. So what should you really be getting out of your budget?
Get to Know Yourself
The first month of budgeting is usually a test month. Often you’ve been feeling like you’re hemorrhaging money and you’re looking to see where it’s all going. A budget is the perfect tool for this because you are identifying where you’re spending your money. Use this information to analyze where you are spending the most and what your priorities are. If most of your money is going towards paying down student loans or credit card debt, it may be time to see if you can lower your interest rates. Alternatively, if you notice you’re spending an excessive amount on food, maybe you could start packing your lunches. Try to identify the areas of your budget where spending less will affect you the least.
This first budget will feel painful. You are visually experiencing the sinking feeling of knowing you are spending too much and now there are two ways you can respond. You can use this first budget as a call to action and use it to motivate you to improve your spending, or you can decide that you’re satisfied with how you are spending and continue to spend without a budget.
Taper Your Total Spending
If you choose to taper your spending, a budget is a great way to accomplish this task. You now have a map of exactly where your money goes and you can target areas where you think you can spend less money by setting goals around your spending for those items at the beginning of the month. For example, you may be spending an exorbitant amount of money on take-out food where some careful weekly planning would be able to help you organize a grocery list and save on food by cooking for the week.
You should use your income and fixed expenses to help you set goals for the costs you can control. But the overall idea of a budget it to spend less than a TOTAL designated amount… ideally you will spend less than your income with the leftover amount being designated for saving/investing or paying down debt. If you spent too much on your budget for food, but you spent less on entertainment than you normally do, don’t beat yourself up. Remember the end goal is to taper your total spending for the month by using the information your budget contains, not by hitting every category spot on.
Anticipate Your Needs
One great reason to budget is to anticipate and bigger expenses you may have coming up. If you know you will have to pay a tuition bill or put a deposit down on an apartment in the next few months, and you need to save $3,000 to do so, be sure to start early and adjust your budget to save for those expenses. Figure out how much you can manage to save each month when you maximize your budget, and divide the total amount you want to save by your monthly saving target. This should allow you to identify how many months it will take you to save for this future expense and give you the motivation you need to stay on budget knowing that you are working toward a goal without causing yourself a panic attack when that bill comes due.
Guide Your Savings
This last item perfectly sums up why you may not NEED a budget, but could definitely benefit from one. You may be spending less than your income every month and moving the remainder to savings without maintaining a budget or putting much thought into your spending. That’s great, but I guarantee you that if you sat down and wrote a budget, you would see areas where you could decrease your spending and increase the amount you’re saving monthly. Push yourself to maximize your savings and investments by attaching them to your goals. Embrace the challenge of finding new ways to save more and let your budget guide you to do better.
Written By: Lindsay Dell Cook
Lindsay Dell Cook is a CPA and founder of Budget Babble. She lives in Philadelphia with her uber supportive husband and adorable daughter. When she's not working, she enjoys spending time with her family, taking their lovable mutt for walks, or reading a good book while buried under a pile of cats.