What is a Budget? Do I Need One?

If you’ve found your way here, you’ve probably been asking yourself some pretty important questions about money matters and your budget.

Namely, what is a budget? And do I need one?

The answers, if you’re still wondering, you’ll find out soon enough and yes, absolutely.

We’ll talk about those questions in a bit more detail right away.

First, I want you to think about all the words that come to mind when you see the word budgeting.
You can do this in your head, or send them to me in the comments section (I’m always looking for stuff to add).
Chances are a few words pop into your head when you think about what budgeting means to you. Words like, saving, paying bills, not spending too much, buying fewer shoes (maybe that one is only for me), retiring, having more money to spend…

There are no right or wrong answers here.

So, what is a Budgeting? What is a Budget?

Budgeting is all those things you just came up with and so much more.

Simply put, budgeting is the process of creating a budget. I know, I know, that’s a pretty great definition, isn’t it?

Budgeting is the act of creating a money spending plan. That spending plan, well, that’s your budget. A proper budget can impact your life in so many positive ways.

Simple, right? If only it were that easy. I’m just going to PLAN to save all my money.

Professionally, I feel as though this is a lesson I teach on an almost daily basis, often over and over again to the same people. It’s one of those basic and necessary skills we don’t seem to learn in school.

Why would I want Budget?

A budget is an awesome thing, even if you don’t get the same enjoyment from a beautifully formatted and balanced spreadsheet as I do.

At its core a budget is a plan. Having a budget allows you to determine, in advance whether, or not, you have enough money to do the things you need or want to do.

Budgeting makes spending decisions much easier since you can quickly and easily see if you actually have the funds to support whatever it is you want to buy or do.

It’s an amazing tool to help you prioritize your spending and helps to ensure you spend your money on the things that are most important to you.

If you don’t have enough money to do everything you would like to do, then you can use this planning process to save money. It give you something tangible to focus on. It’s a way to put your financial goals and dreams onto a page and aid you in making decisions to ensure you’re working toward your goals and living the life you most want. and to help you reach your goals and live the life you most want.

Have you ever had to decide whether to pay your phone bill or buy new shoes knowing you only had the money for one? Hopefully not. Hopefully it would be an easy decision if you could see it that way.

But, have you ever wondered how you were going to pay the phone bill after buying new shoes when you didn’t know how much money you had? That’s a much more common situation – one I see in my office multiple times a week.

You would not believe how many times I’ve heard people as How could I have known I wouldn’t have enough money?

In some ways, budgeting is a mechanism of self care. By being aware of our financial constraints (as unpleasant as they may be) we can ensure we can take steps to ensure we pay the most important bills first thus reducing our overall stress levels.

Having a budget can help you:

set spending limits
live within your means
find ways to get rid of your debts
reduce costs
have more money for things that are important to you

Why is Budgeting Important?

Budgeting is a plan, it’s a method of organizing your income and regular expenses so you quickly and clearly see how much money you have coming in and where it’s going.

It’s one way to ensure you have enough money for the things you need, even if it means cutting back on the things you want. It’s a tool to help you ensure your money is going toward your priorities.

When done properly budgeting can help to not only keep you out of debt but it can guide you on your way out of debt or toward your financial and saving goals.

I don’t have enough money to budget

One objection I often hear when I talk to people about budgeting is that they don’t make enough money to budget. Their income isn’t high enough to make a spending plan.

In my opinion, budgeting is even more essential for those times when every penny matters. It’s critical to conscientious money management for those people who need to account for every dollar they spend and every purchase they make.

While beneficial for everyone, a budget is especially important for people who:

have trouble paying your bills
don’t know where their money is going
don’t regularly save
want to find ways to make the most of the money they have
have problems paying off debts
want to plan financially for major purchases such as a home, car or travel
want to prepare financially for important events such as retirement, having children or going to school

Before you Budget

If you’ve made it this far, it’s clear you’re well on your way to starting your budget, paying off debt, and saving to reach your goals. There are just a few things you need to think about before you jump into the deep end.

Your Financial Goals

Research has shown that we don’t do much without motivation and budgeting is no different. Chances are it’s not something you’re going to enjoy, so you need a reason to do it, something that will keep you going through the most unpleasant parts.

These goals can be short or long term. The important thing is that they’re incorporated into your budget so you can see yourself getting closer to or farther away from your goals based on the financial decisions you make.

Some of your goals might be:

paying off your debts
saving to buy a home
beginning to build your savings for retirement
paying for post-secondary education if you want to go back to school or support your kids when they move out
Creating an emergency fund

A word about Emergency Funds
As far as monetary goals go, an emergency fund should be one of the first things you save for. This is what will help you in the event of an unexpected situation. You emergency fund should be enough to cover your living expenses for 3 to 6 months.

It is a safety net in case you lose your job, have to replace the furnace, or need a substantial car repair. It helps to relieve some of the stress these common situations can cause.

Where is Your Money Going

Are you one of those people who never knows where their money goes? Does it sometimes feel as though you get paid and the money disappears right out of your bank account?

Creating a budget plan and tracking our income, expenses and spending will help you figure out where your money comes from and where it is going.

It’s a great visual way to see the impact our spending habits have on our overall financial well being.

Keep your receipts, check your bank and credit card statements and take an honest look at where your money is going.

Where can you cut back? Where do you see yourself actually cutting back? Small changes can have a huge impact on your budget and free up some money to put toward your goals or other priorities.

Use the first couple months of your budget to track your spending and get to know your habits. Keep track of everything you buy, every bill you pay, everything you spend money on.

Determine your Needs and Wants

Once you’ve done that determine whether each of those things is a need or a want. There is no right or wrong answers for this. What we consider needs and wants is going to vary based on our life experience, priorities and current circumstances.

Need: is something considered necessary, required or essential. Things like shelter, food, clothing or medication can be considered needs. These are the things you can’t live a happy, healthy life without.

Want: refers to those things we would like to have but don’t necessarily need. This includes things like a gym membership, and vacations, designer clothes.

Obviously we’re human beings so needs and wants aren’t a black and white as necessary for survival/ not necessary for survival. Our personal preferences, situations and priorities all play a role in this.

I guess the best way to differentiate is to understand that while we all need food and sustenance, we don’t need to eat out every day.

Not only are needs and wants not consistent across the population, they also aren’t static and tend to change over time for each person.

For example, going to the laundromat every couple weeks is perfectly doable for many people, but when you have young children, having ready access to full sized appliances might be a necessity.

Do I Need a Budget?

The answer you’ve been waiting for. YES, you need a budget!!!

You would be hard pressed to find someone who truly would not benefit from a budget. What have you got to lose?

Take a few minutes, figure out where your money is coming from and where it is going. Than look at changes you can make to help ensure your money is being used to support the things that are most important to you.

Some Awesome and Easy Ways to Save Money

Use Rakuten to get money back when you purchase the things you were going to buy anyway. Sign up through this link and get $10 off your first order!

Find out if you qualify for a discounted Amazon Prime Membership. Even if you don’t, you can still try it for free.

Let’s Talk

Do you currently budget? Are you going to start budgeting after reading this post? Let me know how it goes!

I wish you all the best in your financially secure future.