• Chris M Wilson

The Importance of a Budget!

If you are struggling with your finances or want to become financially free you must create a budget. Without having a plan and knowing exactly where your money is going, it seems to all get spent every month. Do you know the feeling of working year after year and feel like that savings account you said you would eventually build up is still at zero or barely gaining momentum? Many of us like to say, well when I have more then I will save, then I will give, then I can buy the house or go on the vacation, then I will pay off my debt or whatever.

You need to take responsibility for your own actions, step up and decide that your life is important and knowing how to manage money is not as daunting as it may seem.

Poor spending habits and lack of a plan can create huge amounts of stress in our lives. Money needs to be taught in our schools and be a more open topic of discussion. It’s not necessarily about earning more and then being able to do or achieve something. It’s about following a budget to allow you to continue on the upward trend of saving and living a comfortable life for the long run.

What is a budget?

A budget is a plan that takes your total income, expenses, and savings and allots your money to areas where it needs to go.

This can be anything such as bills like rent, mortgage, cell phone bill, credit card, debt, cable, gym pass, monthly subscriptions etc. Savings like house fund, new car, vacation, retirement fund, kids’ education, or a wedding. Contributions such as charitable donations to a cause/causes you are passionate about.

Many people see a budget like a diet, in terms of restriction, sacrifice, time consuming, a burden and whatever else. Although a budget is designed for a specific person and their current circumstances it should not be created with huge sacrifice or restrictions in place. It is to be used as a guide to follow to keep you on the right track, nothing else.

Creating a budget is simple and extremely effective. It is a visual aid to help us pay what we need to and enjoy our lives without overspending. I have used budgeting for over 6 + years and have been able to save and do more in those years than any other time in my life. Budgeting gives me peace of mind and allows me to reach my financial/life goals faster.

There is one book I’m going to recommend you read to launch you on the right path regarding budgeting. I listened to the audio book and read it many years ago and have kept to budgeting consistently each month ever since. It’s called You Need a Budget by Jesse Mecham. It is a fantastic book based on why you need a budget in your life and how it will help you become even more financially free. Jesse calls it YNAB for short and has created an amazing app to go along with it. It’s free to download and is a great digital way to track/adjust your budget/spending every day. This book is extremely important to read as it goes much further in depth into a budget and will no doubt change your life with a concrete plan.

If you aren’t into the smart phone apps and digital versions of budgeting that is totally fine. A piece of paper with some lines will work simply fine if that’s what you prefer. Or if you want to create your own budget via an excel spreadsheet that will work too. I like using the app on my phone because it allows me to see and adjust the budget in real-time day to day. Let’s be honest a lot of things we plan don’t go the way we want them to. Having an app on your phone makes it easy to have to make changes day to day or week to week if something comes up or maybe you forgot about an expense that is now here. When I purchase anything like groceries or a coffee, I will input the amount into the app right away. This way it calculates it and I can see how much I’ve budgeted for the remainder of the month.

The point of budgeting is to ensure you aren’t overspending what you make each month or aren’t spending $1000.00/month on eating out or whatever other crazy bad spending habits you may have formed. It’s time to find that right balance to allot the money for your expenses, savings, and some fun stuff to keep life interesting and exciting.

Creating a Budget

The first step in creating a budget is to know exactly where your money is going each day, week and month. To get an accurate measure I would recommend calculating all your spending for 3 entire months. Write it all out on a sheet or your computer each day. This may sound like a daunting task at first but absolutely necessary to get honest with your spending habits. A lot of people don’t think they actually blow $1500 dollars a month on random impulse purchases.. But do you? You must get real and know where each dollar you earn goes, this is critical.

Here you will track all your expenses, if your using the app create the headings for each expense such as phone bill, internet, rent, car payment, insurance, gas, groceries, credit card, etc. These are the things you require each month to survive, the bare necessities. Ideally you want these expenses to be lower than the total income you earn monthly. That way you will have some extra money for fun, shopping, learning/books, charitable donations, savings, emergency fund, house fund and so on. There will be a lot of different places where your money goes each month. It may vary slightly month to month, but you should be able to create something that suits your lifestyle.

The trick is to live well below your means. This means to live a lifestyle that costs much less than what you earn for income each month. If you earn $3000.00 each month and can live off $2000.00, you will be able to save or spend the other $1000.00 accordingly.

Many people live lifestyles where they spend the same amount of money they earn each month or even worse they spend more. This is where people can get into serious trouble with credit cards and consumer debt. Racking up money on these at 20% interest is all too easy. I want to outline the basic reason why a budget should be the foundation in your financial plan and show you how it can do wonders for your peace of mind long term.

Creating a budget is the first step in the right directions when dealing with your finances. If you don’t know exactly where every dollar of your income is going how are you going to plan for the future and save for that house, apartment, car, vacation, education or whatever else? I know from my own experience that budgeting will help you immensely. It may take some time at the beginning and be tough to get the ball going but once you implement it in your life and create the habit of tracking your spending you will be well on your way to live Your Optimal Lifestyle. Be sure to read the YNAB book and download the app. Thanks so much for reading this I hope you enjoy your best time in life yet through financial freedom.

Chris Wilson