When starting out on the path of financial improvement, the first piece of advice you will almost always here is that you need to make a budget. Some people are immediately turned off by this idea. Many others see the value in it, so they start tracking their expenses but are soon frustrated by the tedious and nonstop record-keeping. Many times we never get past this first piece of advice, and therefore never make any real strides towards getting our financial life together.
We can probably all agree that budgeting is both hard and not fun. But it is an important part of building a strong financial plan. So how do we incorporate a budget without killing ourselves in the process? By keeping it simple and changing our philosophy.
The philosophy behind budgeting
The end goal of making a budget is not a lifetime of meticulous tracking of income and expenses. Honestly, that sounds horrible. And if you go into it with that mindset, you will absolutely fail.
Rather, the goal should be to form an awareness of your financial goals and then to make conscious decisions about earning, spending and saving that lead to regular habits that fit those goals. By forming rock-solid regular habits, your life will naturally stay within your budget. This reduces your anxiety about money, reduces the time spent thinking about and managing money, and allows you to focus on living your life.
In other words, a good budget provides structure that allows you to spend less time budgeting and more time living.
At this point you’re likely pretty skeptical. How can making a budget allow you to spend less time budgeting? Let’s work through an example with everyone’s favorite topic to procrastinate on: retirement savings.
Whether you are or are not currently saving for retirement, I’m sure you know that you should be. We’re hit over the head with that advice all of the time. So let’s say that you don’t have a budget that includes regular retirement savings. It’s likely that you spend time worrying about your savings. Are you saving enough? Should you start saving now? What about in a few months from now? How much can you really afford to save? All of these questions can pop into your head at any time, which adds anxiety to your life and takes your focus away from other things.
Now let’s assume that you’ve taken the time to make a budget and included retirement savings as part of it. I’m going to assume that you spent a little bit of time, maybe an hour or two, to figure out a ballpark estimate of how much money you will need for retirement, and used that to set up an automatic monthly contribution that helps you toward that goal. With all of that done, and having only taken a couple of hours, do you have to spend extra time worrying about it? Of course not. At that point you can largely forget about it, knowing that it’s already been handled. The random periods of stress and uncertainty are gone and your energy is now free to focus on the things you actually care about.
The end goal
The example above deals with retirement savings, but it is easily generalized to anything that you spend money on. A budget gives you structure with clear boundaries, and this structure makes your decision-making much easier because the decisions have largely already been made. It takes the uncertainty out of your financial situation and allows you to live your life knowing that you have the money stuff handled.
A good budget frees you from constant financial worry and gives you the ability to spend your time and money as you truly want to. That is the real end goal of making a budget.