Making a budget is extremely important. However, many people don’t know how to make a budget, how to save money with a budget, or understand why they should have a budget in the first place.
68% of people live paycheck to paycheck.
26% have no emergency savings.
The median amount saved for retirement is less than $60,000.
The average household has $7,283 in credit card debt.
And, probably one of the biggest reasons for the statistics listed above is that over 60% of people do not have a budget.
There are many reasons for budgeting, yet it seems like the majority of people still do not have one. I believe that if more people started making a budget, they could stop living paycheck to paycheck, increase their savings, reduce and/or eliminate their credit card debt, and more.
Budgets are extremely important, and I believe that nearly everyone should have one. Rich, poor, middle-class, no matter where you are financially, a budget can most likely improve your financial situation.
I’ve been asked several times why I have a budget, and some people even assume that I have money problems because we track our cash flow and spending. I’ve even had people offer to lend me money 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 that exists that only people who are “bad” with money need one.
However, this couldn’t be further from the truth. Considering that the average person saves no where near the amount they need in order to retire, creating a budget should be on everyone’s to-do list.
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.
Note: To make things easier in this post, when I say “budget” I am talking about doing things such as (all or just one of these) tracking your spending, managing your cash flow, having a normal budget, going on a spending diet, etc. Basically, do you know where your money is going and how much money you are saving each month? To me, that means you have some 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!
Related articles on making a budget:
Here is why you need to start making a budget:
1. There are many positives of making a budget.
Budgets help people manage their money better. It’s really that simple.
I’ve never heard someone say that they regret making a budget – it’s always the opposite. Often, people even say they wish they would have started one sooner.
Budgets are great because they keep you mindful of your income and expenses. With a monthly budget, you will know exactly how much you can spend in a category each month, how much you have to work with, what spending areas need to be evaluated, among other things.
Whether your budget is more traditional- writing everything down with pencil and paper, or if you are just tracking your cash flow, making a budget can be extremely beneficial.
Budgets have helped people reach their financial goals, pay off debt, make more money, retire, and more.
2. Making a budget can help you pay off debt.
Here are some great debt payoff stories:
Do you know what all of these people have in common?
A household budget helped ALL of them reach their goals!
By having a budget, the people mentioned in the articles above were able to pay off hundreds of thousands of dollars in debt and learn how to become debt free.
Yes, having a budget can actually help you pay off significant amounts of debt.
Here’s a quick summary of how one of these people felt about budgeting:
Developing a budget was the first step [to pay off debt]. My wife and I spent an entire month simply monitoring our spending without changing our habits. Why did we do this? Well, we wanted to see where our money was going.What we realized is that our money was going everywhere. We were spending outrageous amounts of money for things that we didn’t even realize we were getting! Sure, some of it was important (food, certain bills, etc.), but there was so much that was unnecessary. The couple of dollars here and there for snacks and beverages (when we have these at home), the fast food or restaurants in place of dinner at home, or the subscriptions that we had forgotten we had that were still charging us monthly.
Making a budget completely changed this family’s financial situation, and even though they thought they weren’t wasting money, their budget showed them that they actually were.
According to NerdWallet, the average U.S. household carrying debt has $15,611 in credit card debt, and the average student loan debt is $32,264.
If this isn’t an obvious reason 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. Analyzing your income and spending is important.
Without a budget, you may never analyze your income and/or spending, which can cause you to waste more money.
If you are spending more money that you make each month, then this is a reason to create a budget because this shows that something is not going correctly.
It’s so easy to spend more money than you make each month, these days more than ever. Part of this is because it is so easy to get approved for any type of loan (such as a car loan, financing plans, etc.), which can lead to a lot of debt.
If you find that 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 where your spending problems are until you have a budget.
A budget will show you what needs to be changed. You will see exactly how much you are making every month along with all of your expenses. With a budget, you may find that you are spending too much on entertainment, going out to eat, which bills are bogging you down, and more. This will allow you to pinpoint which areas need improvement so that you can stop living paycheck to paycheck and start saving money.
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 more in your budget each month. And, this can go a long way!
4. A budget can help you reach your financial goals.
Making a budget helps you stay on track with your financial goals.
This is because without a budget, you may spend money without thinking about how it will impact your goal progress.
There are many different financial goals in which a budget will help you reach faster, such as:
Retirement. This could even mean 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 because it may help you find extra money to put towards your debt.
Buying a home. If you have always wanted to buy a home or make some other large purchase, a budget can help you save for something that you never thought was possible.
Funding an emergency fund. One of the other great benefits of creating a budget is being able to fund your emergency fund. This can help protect you in case a big expense comes up or if you lose your job.
As you can see, a budget is great because it can help you reach your financial goals. Your budget will make your goals more attainable and realistic!
5. It’s easy to start making a budget!
Lastly, making a budget isn’t difficult to do. A budget can be quite easy to create, so there is no reason not to have one.
You can create a budget with budgeting software, a pencil and paper, an Excel spreadsheet, or so on.
My favorite way to budget is by using Personal Capital. With Personal Capital, you can stick to a budget by easily setting monthly spending targets, visualizing your spending and savings, getting insights into your cashflow, seeing the transaction you’re making, analyzing your net worth, and more.
Learn more about making a budget at The Complete Budgeting Guide: How To Create A Budget That Works.
Do you think not making a budget could destroy a person’s finances? Why or why not?