The key to financial security? It comes back to budgeting
Paul Fain, CFP®
A global economic slowdown and raging inflation have many households examining their spending choices.
In good times and bad, budgeting is perhaps the most important tool to help you reach the goals in your personal financial plan. According to a 2020 Forbes Advisor article, “Budgeting often gets a bad rap, but it’s all about spending money on the things that matter most to you.”
It is hard to achieve your life goals if you have no clue where your money is going and how much you are spending. Understanding your monthly inflows and outflows of money enables you to know when you are overspending and need to cut expenses.
Unfortunately, an Intuit Survey of at least 1,500 people found that more than 60% didn’t know how much money they spent the previous month.
Why do we avoid budgeting? Most of us don’t like to be held accountable. Accountability means boundaries and restrictions. Many non-budgeters simply don’t know where to start. Some people are just too proud. I know quite a few people who have significant wealth but are overspending and jeopardizing their future financial security.
The telltale sign of no spending plan? When people scurry to figure out how to pay for a vacation or a new car or a home remodeling project. The funds often come from a credit card, home equity or 401(k) loan versus a budgeted savings account.
Mindy Crary, a financial coach, writes, “Every individual is the authority on their own spending, but it takes work to maintain awareness and change habits. So, the issue becomes not one of tracking expenses, but UNDERSTANDING how your money interacts with your emotions, moods, values and priorities.”
Get started! Take a few months and track your spending. Get a baseline of your fixed and variable expenses. Check out the online budgeting tools, such as Mint, YNAB (You Need A Budget), and Tiller.
If maintained a little every day, budgeting should gradually become easy. The Forbes article adds, “Think of it as a regular maintenance task, much like doing your laundry…your laundry is an ongoing responsibility that cannot be avoided, ignored or forgotten without some serious consequences.”
A budget doesn’t have to be perfect — circumstances change, the unexpected happens. A budget gives you a true north to come back to. “Bottom line, the way you become financially successful is to spend less than you earn. That’s it. I can’t force anyone to make that choice,” says Crary.