Are you part of the nearly 70% of people that don’t do a monthly budget?
Throughout my early 20s, I was part of that majority statistic and held the belief that a budget is “not necessary”, as I already “make sure I don’t spend too much.”
Which in theory was true… I always maintained a minimum amount in my checking account. I never had to use credit cards to pay for expenses. And I had a savings account that I’d throw money into every once and while.
But when my wife and I graduated college back in 2013, our financial priorities shifted. We wanted to kill our debt, and start our lives as adults with financial opportunity. We had plans to get married, invest, and work towards financial independence.
As I read more about how to build wealth, author after author, study after study, all said the same thing – your budget is the most powerful financial tool. It is the best way to control your money so that you can be most productive with it.
So nearly 6 years after starting our first budget, here I am, still spreading the good word about how much budgeting can benefit your life.
5 Benefits of Doing a Monthly Budget
- Permission to Spend – As somebody who is by nature a “spender”, the budget has completely removed the guilt of buying anything. When you budget money to a category for spending, you know that money is there and assigned for purchases.
- Financial Stress Reduction – Taking control of your money is the absolute best way to reduce financial stress. Even if things are tight, or you have debt hanging over your shoulders, a monthly budget will give you visibility and a path forward.
- Achieve Goals – Your financial goals are far more achievable when you are actively assigning your money to tasks. Saving for a car, a house, emergency fund, or paying down debt. A budget forces you to look at the money your are earning, and give it a “job.”
- Prioritize Your Needs and Wants – A budget is a great way to quantify, with real money, your needs versus your wants. When you list out your expense categories, you actively will assign money based on priority. Needs come first, then come wants.
- Build Wealth – I’m assuming you work hard for your money? The budget is your way to make sure your money works hard for you. Across nearly all personal finance research, doing a budget ranks as a major factor of wealth building. Doing a budget will allow you to be intentional with your money, ultimately leading to more wealth and financial security.
How To Get Started With a Budget
Before you get started on doing a budget, know that it’s like a good exercise routine – it’s awkward at first and takes time to get used to. However, once you are 30-60 days in, it’ll be part of your routine and you’ll begin to see some results.
I recommend doing a zero-based budget. Which means that you budget all of the money you have available in your account, until you have “zero” left to assign. I’ve found this method to be most effective, as you are allocating money you’ve already earned, versus “forecasting” income and spending as other budgets methodologies do.
I HIGHLY recommend using YNAB as a budgeting tool. They have web app, as well as smartphone apps for doing your budget. YNAB is a zero-based budgeting system, and provides you with all the necessary functionality. They also have excellent how-to videos and support for any questions as you get started.