For the longest time, I never understood why so many people advocated keeping a budget. Okay, if you’re money is tight, and you’re living paycheck-to-paycheck, then sure, making a budget makes sense. And if you’re spending too much, and incurring debt, then a budget makes sense. But what if you’re on a decent financial track — naturally? You make a decent salary, you spend less than you make (because your needs just aren’t that high), and you normally wind up with savings at the end of every month, without trying. If that’s your situation, do you need to budget?
Until recently, I thought that the answer was no. Why bother budgeting when everything’s fine? Then I tried it. And I was totally surprised. Here are the benefits of budgeting, even when you’re doing alright:
#1) You know where your money is going.
You might think you know what you’re spending money on. But when you see the numbers actually written down, you might be in for a surprise.
As it turned out, I spent far more on restaurants than I ever imagined. And I knew that my spending on restaurants was out-of-line with my goals. In other words, I found an area in which I could cut back.
#2) You save more.
As a result of finding new places to cut back, you end up saving more money. Sure, you’re already saving a decent amount of money (naturally), but who doesn’t want to save more?
3) Reach goals.
The additional savings can help you reach your goals faster. If you’re saving for the downpayment on a house, for example, you might currently be on-track to buy a house in three years. Budgeting can help you increase your savings, which can help you get there in two years.
That might not sound like a big deal (buying a house in 2 years vs. 3 years), but that might potentially allow you to capture lower housing costs (if we’re in a market where prices are rising).
And on the back-end, when you’re older and you’re paying down your mortgage, you’ll be extra-happy to have the mortgage paid off one year earlier than usual, so that retirement (or whatever is next) can come even faster.
4) Think about money.
By making a budget, you’ll form the practice or habit of regularly thinking about your money and finances. And that’s a great habit to form. Whatever area of your life you start paying attention to (your finances, weight, etc.) tends to be the area where you see the most improvement.
5) Think about goals.
In addition to thinking about your dollars and cents, the practice of budgeting can help you contemplate your life goals. Where do you want to be in five years? What do you want your life to look like? And how can your current spending and saving habits help you reach those goals?
You might decide that you want to be completely mortgage-free, for example, in five years. Or you might decide that you want to start a family, so you need some extra savings. Either way, making a budget can jumpstart that planning.
Kennedi writes about finance for women at Face and Fitness.