Why Budgeting Is Important

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If you are reading this, you most likely have some future financial goals you plan to accomplish. Without a budget it is almost impossible to do. A budget is a financial map to help you reach your financial goals. Having the map in hands doesn’t mean a thing if you don’t first determine your current financial situation.

I’m going to go into a lot more detail on the necessity of budgeting and why it is such an important element on your financial well-being throughout the rest of this post.

BUDGETING HELPS EXAMINING WHERE YOUR MONEY ENDS UP

Ever wonder why you never have any money left after getting paid. Some will make you think it is by design, you’re underpaid, or problems tend to visit you more often than others. None of these are valid reasons to justify why you’re always penniless even though they make sense. 

Some will keep a pocket notebook with a pen/pencil attached everywhere to track their spending for a month or two. I personally don’t even like carrying two phones so walking with extra nuisance is a no-no for me. Instead, I printed two of my last bank statements since I barely carry cash on me and use my bank card for most transactions. Break it down in different categories for example Rent/Mortgage, credit cards, food, gas, restaurant, groceries. Doing this, you have a better idea of your financial state and determine your essential/non-essential expenses.

If you’re looking for more features like credit monitoring and auto-advisors there are plenty of budget-tracker apps available that can be of great help. The best two apps I’ve personally used are: MINT [free] and later upgraded to YNAB [monthly subscription].

BUDGETING WILL HELP YOU STICK TO YOUR BUDGET

Anyone can set a goal. Setting a deadline for completing it is the challenge. If you can manage to control your spending, committing to a budget shouldn’t be that hard. 

There are two essentials you need to break down. Some are obligations you must pay regularly. 

Essential Expenses:

Mortgage/Rent payment
Automobile
Insurance
Student loan
Utilities
Savings

Nonessential Expenses:

Restaurant meals
Hobbies
Vacations
Movies
Streaming subscriptions
Books and Magazines

Here’s a look at MY Bi-weekly budgeting list [NOT including The Wife’s budget responsibility]

You can download the PDF format of our full budgeting Worksheet here

The whole goal of sticking to a budget is to have a strategy in place before you spend your money. With a budget, you’ll be able to make firm spending selections based on the parameters you’ve already established.

BUDGETING CAN BENEFIT YOUR RELATIONSHIP

If this applies to your current situation, knowing having a budget is crucial. Generally, in every relationship there’s that one partner that may be better at resisting temptation, setting priorities, staying more committed on a long/short term budget and so on. While the other is best at handling activities.

The key to a successful relationship is to agree on goals and how you’ll achieve them. One partner having more control over the finances doesn’t make it a bad thing as long as we both agree and are on the same page.

When it comes to activities, shopping, traveling destinations are not my things, the wife takes care of all of them. Why? because she’s good at it. But, when it comes to analyzing where it will fit our budget – best believe I’ll be the one pulling my notepad, calculator and start writing every detail. Anything to build family memories, I’m all for it as long it fits the budget in a realistic manner.

BUDGETING HELP TAKING ON DEBT

There are no ways to accumulate wealth and become financially independent without tackling your debt. Of course, we have good and bad debts. To explain it in just a few words, any expenses you take/make that don’t bring value in the short/long term is a liability. With a budget you get to have a better view on how much you owe and what you need to pay off quickly. 

For instance, before starting my FI journey, paying the minimum amount and pocket most of the money was the way to go. Until I took a better outline at my debt I realized I was not helping my case at all. Now from my paycheck alone I allocate a fixed-amount to my credit cards and brokerage accounts bi-weekly and it’s all done automatically.

Credit Card 1 = 20% [highest interest rate]
Credit Card 2 = 5% [little more than the minimum required]
Robinhood = 7%
Fidelity = 4%

Well, when doing my budget I realized only 2% from my monthly minimum payment was going toward the principal. Let me show you why paying the minimum will never be at your benefit but the creditors. Let’s say you have a balance of $1000 with an interest rate of 18% APR and you’re required to pay $20  as the minimum payment. That 18% APR becomes 1.5% of the balance while the minimum payment (of $20) is 2% of the balance. Therefore, only (2% – 1.5% = 0.5%) 0.5% goes toward the principal monthly. On your $20 minimum payment, $15 goes towards interest and only $5 toward debt repayment.

For this reason, allocate as much money as you can on the highest interest card to pay it off and stop using it. Once paid off, roll that amount to the next highest interest rate on the list.

BUDGETING ASSISTS IN SAVING MONEY FOR THE FUTURE

I have yet reached the point where I can make sixty-plus percent of my income work for me in terms of saving and investing. Although, while I’m still working on being debt free, I can see the tremendous difference the small amount I’ve been contributing made in just two and a half years.

Ever since, my budget began to hold me accountable for any financial decision I’ve made and  still making. If you’ve prepared wisely, you’ll be able to afford what you desire.

FINAL THOUGHTS

If the very concept of budgeting gets you tense try looking at it with a different mindset. Instead, see how it will make your life easier and help you meet your short and long-term goals. As you move through life, these changes will become part of you and eventually turn to good financial habits.

If you’re like many of us in the FI community who don’t want to be stuck in the rat race and instead want the flexibility to work when you want, you’ll need to understand the value of a budget.

**Valuable Resources I Use Daily:

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