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Why Living On A Budget Will Help You Become Wealthy:
I’ve written over and over again about how to create a budget, but I’ve never really touched on why budgeting is important to your financial success.
Let’s say, hypothetically speaking, that one day you look up and realize you are typical.
- You have a bit of credit card debt, a student loan, a car loan, a mortgage and if you are particularly unlucky you have medical debt, payday loan debt . . . . . the list goes on and on.
- In addition to your debt, you tend to randomly spend money. At the end of the month, you are constantly asking yourself, “where did all my money go”.
- You don’t have any wiggle room with your money and can only dream of having an extra $1,000 sitting around for an emergency.
If this is you, then you really, really, really need a budget.
To Put It Simply, Just Like Virtually Everyone You Are In Debt And Don’t Know How To Manage Your Money.
If this is you, welcome to the party! Seriously though, it doesn’t have to be this way. I know it sounds crazy, but if my husband and I can pay off $293,000 in debt in 5 years, you can do it too. If you are willing to put in the work, I can show you how.
Why Is Budgeting Important?
There are all kinds of official definitions of budgeting, but when it comes right down to it, budgeting is important, because it is how you tell your money what to do. Budgeting is how you control your money.
At its most basic form, you create a budget by adding up your income and then your expenses and then subtracting the difference. If you have extra money at the end of the month you won and if you don’t you’ve lost.
Creating a budget that actually works, take a bit more planning and effort then this simple method.
The reason a budget is so important is because when you are truly budgeting you are the one that is controlling where you spend your money.
At the beginning of the month, you sit down, figure out your estimated income and then pre-spend all of your money before the month even begins.
This type of budget is called a zero-based budget and focuses on you and your spending habits.
For example, you determine that you will spend $50 next month on clothing. Even if you find the most amazing sell at Nordstroms, you choose to control your spending and only spend the $50 you’ve budgeted.
If you want to earn brownie points you spend even less. 🙂
The reason budgeting is such an important part of your financial success is because by learning to set limits and control your spending in certain areas you can put all of your financial energy to work and begin building your financial nest egg.
Let’s say you are used to spending $100 per month on clothing, but by actively using a budget and controlling your spending you can save $50 per month.
If you can do this in multiple areas of your life, think of how much extra money you would have each month.
I know how important budgeting is because I use a budget every single month. Without a budget my husband and I would not have paid off our debt, we wouldn’t have a fully funded emergency fund and we definitely wouldn’t be saving for retirement.
When you budget, you can do all of these things and more.
Why does living on a budget matter?
Budgeting is the quickest way to get out of debt. It is just that simple.
#HardTruth – Debt never stops growing unless you pay it off!
When my husband and I got married we had $446,000 in debt. 5 years later we had paid off $293,000 in debt using a budget. There is no way we could have shrunk our debt so quickly without using a budget and a personal financial plan.
I know that most people hear the word budget and immediately think “I have to limit my spending”. This is so far from the truth.
When done right a budget can be the most freeing personal decision you’ll make.
When you create a personal financial plan (you can download a free financial plan example here), you are giving yourself permission to choose a financial path.
When creating a budget it is important to remember a budget is more than just listing your income and expenses and then tracking them. Creating a successful budget is more than just giving yourself a gold star if you manage to hit your numbers.
Awesome budgeting is giving your money direction. It is telling your money where to go, rather than having your money tell you where to go.
When you have the ability to control your money, it opens up a whole new world for you. It may take time, but as you learn to control your spending, you will get out of debt. As you pull yourself out of debt you will discover a whole new world of possibilities.
A budget brings order to chaos.
Oh, there is the occasional outlier who can manage their finances without a budget and do fine, but most people need at least a general framework.
Seriously though, budgeting is very simple. It is sticking to the budget that is a bit more problematic.
How To Successfully Stick To Your Budget
Sticking to the budget is what sets successful people apart. Think about how different your life would be if you truly understood the importance of budgeting.
- Imagine having money left at the end of the month
- Imagine being able to pay for the little things without stressing each month
- Imagine being out of debt
- Imagine having a fully funded emergency fund
- Imagine being able to save money for retirement
The trick is to always remember that you are in control of your money and the future that you keep dreaming off.
Having a budget gives you the freedom to spend your money in the method you choose. Obviously, you still need to make your payments, but what it does is help you control the rest of your spending.
A budget helps you channel your discretionary spending.
I know that for many people, there isn’t such a thing as discretionary spending after the bills are paid. I’ve been there, it really sucks.
I will promise that if you start budgeting you will find extra money. I don’t know where it will come from, but as you begin to track your spending and make wise financial decisions you’ll start to notice where you are draining money.
You can’t plug a drain until you find the leak.
If you are struggling to control your spending I recommend checking out How to Find and Eliminate Spending Leaks In Your Budget. It is my own class, so I’m a little bit biased, but it is a great class that will help change the way you look at your spending habits.
If you can change your spending habits they sky is the limit when it comes to your financial future.
If you have hit the next phase and have some discretionary spending, then you have discovered that your money still seems to disappear.
Before I started budgeting consistently, I would look up at the end of the month and realize my money was gone and I had nothing to show for it. And more importantly, didn’t have a clue where it had gone.
It is very easy to spend the extra money we make when we aren’t actively watching and monitoring our spending. Just today, I placed an $80 order on Amazon. It wasn’t anything major, but it would have been so easy to add a few things to the order that have been on my wishlist for a while.
Technically I had the money in my budget, but I’ve discovered something fun about budgeting.
I like to beat my budget. It is kind of a game with me.
I love being able to “win” in certain categories.
If I can beat myself in certain categories, then the money ends up in my slush fund. My slush fund is currently being saved for new couches, carpet cleaning and professional deep cleaning of my house as soon as our last pet is gone (two weeks from now). I’m seriously so excited.
The Importance of Budgeting
Budgeting is more than just the numbers on a paper.
A real budget is a leaving breathing document that helps you control your spending. Once you learn the importance of budgeting everything changes with your personal finances.
I know it sounds corny, but budgeting really is the key to your financial success. If you can control your spending you will be able to get out of debt and save money.
#moneytruth – You will never get ahead financially if you are in debt and can’t save money.
For help on budgeting here are a couple of additional resources:
- 85+ Budget Categories For Your Household Budget
- How to budget if you have an irregular income
- The Two unbreakable rules of budgeting
- How I busted my budget and what I learned from it
Questions of the day: Why Is Budgeting Important To You?