How to Save Money » Budgeting

Do You Need a Budget?

If you don’t know where you are going, you will probably end up somewhere else.

~ Lawrence J. Peter

Budget.  Just uttering the word can make people cringe, squirm, and head for the hills.  Even noted personal finance expert David Bachclaims that budgets don’t work.  Rather, he says that we should “toss out the budget and make it automatic” using his (I think originally David Chilton’s) pay yourself first principle. The idea is that you would decide to save, say 10% of your pay and just live on whatever is left over.

I have 2 issues here.  First, everybody needs some kind of budget. Second, even if you only pay yourself first, you are still practicing a form of budgeting, albeit a weak one.  Mr. Bach has some good ideas, but I have to disagree with him on this point.  Here are a few ways a budget – any kind of budget – can help you.

5 Reasons You Need a Budget

  1. Knowing where you are is half way to getting where you want to be. If you have no idea how you’re currently spending your income, you can’t possibly improve your balance sheet.
  2. Budgets are the “how” part of achieving financial goals. Knowing how much money is coming in and going out is key, not only to determining what our goals are, but to achieving them. A budget is a tool, a method, a means to an end.
  3. Budgeting reduces stress. I know. Budgeting itself can be stressful, but that’s usually because we’re afraid of what we might find out when we look at our financial details. Once you know where you stand, you can spend money on dining out, travel, or whatever is important to you with the knowledge that you can afford it.
  4. You control your money rather than your money controlling you. Knowing how we spend our hard-earned dollars allows us to cut back on things that are less important to us and redirect those funds to things that are more important to us.
  5. A budget can be an early warning system. Having a budget keeps us on track by letting us know when we might be headed for financial trouble, large or small.  When I look at my budget, I sometimes notice bills I have forgotten to pay or financial priorities I have not yet included.  More importantly, it can help you avoid bigger problems like excessive debt and damage to your credit rating.

Does budgeting help you?  Can you add any more good reasons to budget?

Comments

  1. Wojciech Kulicki

    We’ve tried going without a budget before, and every time, it just feels like we’re swimming in a big sea with no direction. Budgets keep us focused, sane, and ready to either prepare for worse times or better times ahead.

    Awesome post.

    • 2 Cents

      Great metaphor! You make a good point about budgets helping us prepare for good times as well. It’s just a great way to make sure your hard earned cash is only going where you want it to go. Thanks for stopping by!

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