Is a budget actually necessary to do well financially? Well, maybe. I know many successful people that don’t use a budget at all. This could be because they are in a financial position that it really doesn’t matter if they spend $300 or $5,000 on food each month. They have plenty of dough and they aren’t really worried about. That being said, for those of us who would miss a couple thousand dollars, there are a number of advantages for budgeting.
Where does it all go? The first problem for many of us, when it comes to personal financial management, is we honestly don’t know where all our money goes. We know that we get our paychecks every two weeks and the money seems to disappear sometime during that time. One of the most beneficial parts of a budget is that it forces us to dig deeper into our purchasing habits. The first time we do this, we are often surprised to find that seemingly insignificant $5 coffees add up to a $150 Starbucks bill every month or that your lunch out with your co-workers every other day was adding an extra $200 to your monthly food bill. And I am not saying that these things are necessarily bad but it is healthy for all of us to think twice before we swipe our credit card.
Financial Goals: It is often very difficult to save for anything significant (emergency fund, house, wedding, college, retirement ect.), when we don’t set aside a specific amount every month towards it. A budget allows us to plan for these big expenses in a methodical way and avoid getting caught with our financial pants down when something comes up unexpectedly.
Is a keeping a budget really worth all the work and organization needed to keep one up? Although it does take some extra effort to maintain a budget, it is easier than ever with modern technology. There are dozens of different personal finance softwares available that making budgeting and tracking some much easier. Mint.com and Personalcapital.com are two of my favorites (and let me add, they are Free). They both allow you to pull in your banking information and easily categorize your expenses. They are a great tool to easily see all your financial information in one spot.
When it comes down to it, you have to do what works for you and what you can maintain. Some people prefer to use Microsoft Excel or just the envelope approach (separate your money in envelopes by category, ie food, rent, ect.). What ever approach you use, budgeting can be a great way to get started connected your money to your goals.