There are many reasons for budgeting, yet it seems like the majority of people still do not have one.
In fact, according to a poll by Gallup, two-thirds of households do not have a budget.
I believe budgets are extremely important and that nearly everyone should have one. Rich, poor, middle-class, or whatever you are, a budget can most likely help improve your financial situation.
I've been asked several times why I have a budget and that I must have money problems since we track our cash flow and our spending. I've even had people offer to lend me money before when I have brought up anything relating to the word “budget.”
For some reason, there is a negative connotation attached to the word “budget.”
There's a myth out there that only people who are “bad” with money need a budget.
However, this couldn't be further from the truth. Considering that the average person saves no where near the amount needed to retire, creating a budget should be on more family's to-do lists.
Instead of thinking of a budget as something that holds you back, you should think of it as a tool to help you reach your goals.
To make things easier in this post, when I say “budget” I am talking about either tracking your spending, managing your cash flow, having a normal budget, etc. Basically, do you know where your money is going and how much money you are saving each month? If so, then to me you have a form of a budget. I realize that different things work for different people but if you don't know how to manage your money, then you need a budget that works for you!
Below are several reasons for why you need a budget.
1. Are you spending more than you make each month?
This is one of the big reasons for budgeting as obviously something is not going correctly.
These days it's so easy to spend more money than you make each month. This has to do with how easy it is to get into credit card debt and how easy it is to get approved for any type of loan (such as a car loan, financing plans, etc.).
If you are spending more money than you make each month and/or you are not saving any money, then you MUST create a budget.
You won't know what your problem is until you have a budget.
By having a budget, you can quickly see what needs to be changed. You will see your exact income that you are bringing in and your exact expenses each month. This will allow you to pinpoint what needs improvement so that you can stop living paycheck to paycheck.
Related article: Does your budget suck?
2. Do you have debt?
According to NerdWallet, the average household who carries debt in the United States has $15,611 in credit card debt and the average student loan debt is $32,264.
If this isn't a no-brainer when it comes to reasons for budgeting, then I don't know what is.
If you have debt then you should definitely create a budget. A budget can help you pay down your debt quicker so that you can stop paying high interest charges. Also, the relief of finally having your debt eliminated would feel amazing, right?
3. Do you have financial goals?
Having a budget helps you stay on track with your financial goals.
This is because without a budget, you might just spend money on whatever without thinking about how it may impact your goal progress.
There are many different financial goals in which a budget would help you reach it faster. The many reasons for preparing a budget may include financial goals such as:
- Retirement. Maybe even early retirement or financial independence? A budget can help you manage your money better so that you can reach retirement sooner.
- A vacation. When was the last time you took a vacation? Budgeting can help you spend your money more wisely so that you can save for a fun vacation.
- Debt payoff. Debt can be hard to overcome, but with a budget you may be able to breathe again. By having a budget, you may be able to find extra money to put towards your debt.
- Buying a home. A budget can help you save for a large purchase that you may have never thought was possible.
- Funding an emergency fund. Just like with all of the above, by budgeting you may be able to fully fund your emergency fund, which can help protect you in case a big expense comes up or if you lose your job.
Side note: I recommend you check out Personal Capital. Personal Capital is similar to Mint.com, but much better. Personal Capital allows you to aggregate your financial accounts so that you can easily see your financial situation. You can connect accounts such as your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more, and it's FREE.
4. Do you know what you're spending your money on?
Without a budget and/or tracking your spending, you might be wasting your money on many things.
With a budget, you can see where your money is going, what expenses you should eliminate, and more. You might be able to find hundreds of dollars or even more in your budget each month. That can go a long way!
Do you have a budget, track your spending, and/or watch your cash flow? What are your reasons for budgeting?
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Great post. If you don’t know where the money is going, how can you be in control of it?
Two major practical problems I often see are unrealistic expectations (“I’m not going to eat out for the next year”) and how it’s really important that your partner is as committed to the budget as you are.
Yes, there are so many unrealistic expectations that people create when they create a budget!
I don’t have a budget per se but I do track my spending and check my accounts. I especially have a monthly budget for clothes shopping for myself, in order not to spend too much as it’s so easy to do LOL!
I also have an extra account for travelling as I travel to a different country almost every month. My grandparents paid for my university education years ago so I never had any university debts and I used my tax refund to pay for my Masters Degree which had me travelling from Germany to England every 6 weeks!
I live in Germany as an expat and I live in a nice house in a trendy gentrified area. Germans frown on exhorbitant spending so I live by that mantle and as a result, have a debt of, by Anglo-American standards, – peanuts LOL!
Haha I have been crazy good when it comes to clothing spending lately. It helps that there are no stores in our new town haha!
I’m not really sure how anyone can think they don’t need a budget. Every business in the world has a CFO or someone who keeps a close watch on the finances (otherwise the business wouldn’t survive for very long). The same can be true for our family finances. You can either set a budget and make it work, or you can spend without regard and fail financially.
Yes! Exactly. If ALL businesses that are raking in huge profits have a budget, then why doesn’t everyone else have one?
I use budgeting because I consider this as essential in life. Budgeting makes life easier and enable us to see where the money goes and the allocation of money. It feels like budgeting is part of money management that I feel responsible of doing.
Good job!
EVERYONE needs a budget! I have a zero based budget – every penny has a destination. I had this when I was wallowing in debt and it helped me regain control, make choices about money and improve. I still have one now when we’ve got no debt other than our mortgage [and it’s a reasonable 15 year with low interest], and have extra money for many wants as well as all our needs. Every dollar goes somewhere we CHOOSE – whether it’s to savings or vacations et al.
If I didn’t have that budget, we’d have NO savings, we would never be able to do the things we now do and we’d have no clue!
Anyone who has a budget they can’t live with each month needs to either learn how to make a budget [I had to go online and to books for guidance and I have a law degree and a masters in tax law – it’s emotional as well as mathmatic] or to be more realistic about what they bring in and can afford, as well as to rid themselves of the sense of entitlement [I deserve . . . I should be able to . . ]
Good job on having such a great budget!
That’s what they say to do in YNAB – give every dollar a job – so even if it’s fun money – it needs to be specifically called out as such and designated not just hoping you have it or overspending and saying “oops!”. I just got this program a few weeks ago (YNAB) – very hopeful that it helps me get my budget where I want it to be. I’ve been doing Mint.com for quite a while but I need something new – hoping YNAB does the trick. Also going to check our Personal Capital. Thanks Michelle.
I like your flexible definition of “having a budget”. We use what I consider a “framework budget”, with fixed and regular monthly expenses. Then before the start of every month, put together a list of “irregular” expenses coming up – medical/dental, gifts, kid activities, etc. I also track our spending, which for me is the most important part of the process. I need to do that to stay accountable. (I was shocked what I learned when I first started tracking our spending!)
Yes, tracking your spending can be such an eye opener!
Budgeting is my road map. How would I know where to go to reach my financial goals without it? 🙂
Exactly!
I don’t know how I survived in pre-budget life. Oblivious I guess. Budgeting brings me awareness of where my money is going, planning for what’s coming up (as best I can), and flexibility to move things around if need be. It brings so much peace of mind.
Yes, the peace of mind is something that many people without budgets don’t realize.
Agreed – and I can fix problems or see them coming if I track everything – if I don’t – well that’s how we got in trouble, over and over again.
Yes, definitely.
I’ve never had a budget in the traditional sense. I know where everything is and where everything goes. Living in Spain now, nobody cares about keeping up with anybody, so the urge to spend needlessly is completely curbed. You’re right though, you need a budget if you plan on retiring early, gotta know where it all is.
Good job!
Great post Michelle! Creating a budget is the first step toward getting your finances in order. I honestly don’t know how I functioned without a solid budget in the past. It’s important to know how much you’re spending on certain categories and where your money is going.
Thanks! Budgets are so important.
I didn’t realize such a large percentage of people didn’t have a budget. That’s a bit surprising.
I know, right?!
I’m all about having a budget now, but I wasn’t when I was younger. I probably would have benefited from a college or high school class on how to manage money better 🙂 But these days I’m all about it!
Same here! I wasn’t the greatest before either. I don’t know how I didn’t rack up credit card debt back then.
I stated budgeting my incomes and resourses when I started college…firstly it was a bit messy, so I looked on the internet and found some blogs that helped me organize my money and set goals (that’s how I found you).
Budgeting elped me not to give up on my interests, such as going to the cinema, gym and every summer I always go on a 1 week holiday without stressing about not spending too much. It helped me more than I could have even imagine!
Good job!
I’m surprised to know that such a high percentage of people don’t have a budget! If I didn’t have a budget, we’d have zero savings!
Yes, I was surprised too!
I still maintain a budget simply because it’s the easiest way to track spending / saving. As long as we meet all our saving goals, I’m not too concerned about the spending, but it’s nice to have that budget to see how we’re doing.
Yep, same here!
I track my spending on a simple excel spreadsheet I created. I make sure to include the name of the store and a category. I filter the spreadsheet so I can look at a specific category, product or store. I have a detailed budget that I created but I am not really using it. I want to get the tracking of expenses down first then I will implement the budget.
Even though I don’t have a budget, I spend less than I make and the residual cash gets transferred to a separate account. Having an understanding of where my money went, allows me to change certain spending habits. Like after looking at my February spending, I noticed I spent $100 in the store next to my job. So I started to bring snacks from home.
Good job!
I never had a budget until about a year ago and now I can’t imagine not having a budget. Sometimes I overspend my budget, but at least I have one in place so I can try to stick to it.
Good job Kayla!
I think we’ll always use some sort of budget. It makes things like buying groceries or going on a trip much better if you know I have X dollars to spend and when I go over, I’m done. We aren’t super strict about it all the time, but at least if we have a bad month, we’re able to get back on track.
Yep, exactly! We aren’t super strict either with ours but it does help.
I totally think people need a budget, but the problem with budget is that it’s like the word diet, no one wants to go on one. I sneakily get my clients to budget by giving them goals based budgets. We set goals every quarter for my clients and they get rewarded for reaching the goals, if they don’t, then we really get into the fine details to figure out what is going wrong. Most clients don’t like when I do that so they typically hit their goals and when they do, they stay within the imaginary budget they didn’t even know they were living with.
That is awesome Shannon! I wish people weren’t so afraid of the work “budget.”
While I do not have a budget, I know where every penny is going. The reason I don’t have a budget per say is because I spend my money where it is needed. If I need new undershirts for work, I go buy them. If I want to travel, then I travel. I’m not a spender and buying things doesn’t excite me for the most part. I’m also maxing out my 401k, HSA, and Roth IRA and whatever money is left over after paying the bills is put into my after-tax account, so I don’t feel that having a budget would help me reach my goals in any way.
I think budgets are necessary for people who have a hard time controlling their spending. But for those of us who get pleasure (I know scary) out of socking away every extra scent into their investments, I do not see them as a necessary tool.
If you know where your money is going, then to me that still counts, like I said in the post 🙂 Everyone handles their money differently and it sounds like what you are doing is great!
When I first read the title my immediate response was Everyone needs a budget! Sure it might look different between people but we all need some kind of form of a budget!
Yes!
I think another reason a lot of people don’t bother with a budget is because so much of the ‘expert’ financial advice out there is just so difficult to implement and time-consuming to deal with.
The vast majority of people don’t have the time or energy to micro-manage every single dollar that comes into their bank account, which is what most budgeting advice deals with. (It got me so worked up I wrote a blog post about it last week: http://www.brokegirlgetsrich.com/easy-budget-method/)
The only sustainable way I’ve found to budget is by setting goals, minimums & limits and sticking to those. If I have $200 extra in my bank account at the end of the month, that’s great. If not, no big deal. I know for a fact that I’m making sustainable progress in my finances, so that’s the most important thing.
Good job Chelsea!
Great post! I am sad to say that I didn’t have a budget until I got married a year ago and my husband and I set one up together and it has been a lifesaver. For some reason, I had always thought it would be difficult but actually it has been a great help to us and our marriage!
Great job Kara! Glad you started one 🙂
I keep track of my money by using Mint. I was good at knowing what I spent before, but now its even better.
Good job Jason!
I don’t necessarily have a budget, but I created one for my boyfriend. See, I’ve always been good with saving, and I basically spend as little as I can while still enjoying the things I want to do. I constantly track my spending; I just don’t tell myself that I can only spend such and such amount on one particular thing. My boyfriend is a whole other story. When we started dating, he was already 23 and had no money saved up whatsoever. This baffled me and almost made my impatient, because that meant I would have to wait to essentially start our live together. Eventually, I convinced him to really start viewing money as a priority. Since then, I introduced him to the Mint app, and it works real well for him. He’s been able to save up to pay for college all by himself. He’s actually almost done with his first year and ready to start summer semester. There’s still room for improvement, but I am really happy for him.
Good job Meagan!
I love my budget. It makes me so happy to see where my money is going. I am also very concious of lifestyle inflation. My husband and I are in the stage of our lives where he (and most of our friends) are getting raises and promotions. It is really easy to justify those shiny new toys or new cars because now we can “afford it”, but that’s what is keeping a lot of our friends in the poor house. I think you need to revisit your budget frequently to make sure you are still keeping your savings goals in line.
Good job Elise! Glad you love your budget 🙂
My go to budgeting methods are monitoring cash flow and tracking spending. I have absolute limits for some types of spending (zero sum budget) but while my income is all over the place, it’s too hard to apply to everything. Cash flow is great and shows my a ‘time lapse’ image of my spending.
Kind of blows me away that so many people don’t have any kind of budget. It’s got me wondering if its the same statistical spread here in Australia… We seem to emulate the US in everything else so it probably is. Scary!
Oops… shows *me* a time lapse…
Note to self: coffee first, comment second.
Yes, it’s crazy how many people do not have a budget!
We have a quasi budget. I have a spreadsheet that tracks everything. I budget our ”fixed” bills- debt repayment, mortgage, insurance etc as well as special events like bdays/Christmas but we don’t budget variable expenses like groceries, eating out, clothing etc. Instead we have a ”budgeted amount” that we get every two week payperiod to live off of that amount it varies how it gets spent but we need t make sure we have groceries, gas etc taken care of first.
Sounds like a good budget Catherine!
OH, the budget! I’ve been meaning to get back into it and I constantly fall back and forget the importance of it. This year has been a bit of a crapshoot but before the end of the month I need to get something together and not just know where I’m spending all my money but how I will spend it. Knowing where your money is going before it leaves your hands means we really can do something about it today.
Yes, do it!
We are in the process of trying to track every last detail when it comes to our spending, starting this month. We are frugal in a lot of ways, but it’s still good to know where exactly our money is going. Should be interesting to see where we are at the end of the month!
Awesome! Tracking spending is so beneficial. I bet you might be at least a little surprised 🙂
I keep myself on a budget all the time and keep track, especially when i am saving for a new car.
Great job!
Arguably, only the people who are good at money have budgets. Unless the person is just very rich or very lucky.
We definitely needed to have a budget when we realized there’s wasn’t much money left at the end of the month. I asked myself what the heck are we spending it on? So I wrote everything down for a full month and saw just how much was being wasted, and I was shocked. Now that we have a budget we try and stick to it, and are even saying a bit each month.
Budgeting is a very nice idea and helps prevent wastage. i enjoyed reading every bit on this post and i really commend your ideas. thanks for sharing
Takes real discipline. I started to write down everything I spent each day, and was shocked where my money was going. Even if you do it for just a few days it will open your eyes as to where you are spending your money.