Do you want to sleep better at night? Do you want to not have to question yourself on your spending? The peace of mind you gain from putting together a simple budget can help with both. I thought a budget meant I couldn’t have the freedom to do what I wanted with my day to day spending. It actually does the opposite, it gives you the freedom to not have to worry about where your dollars are going. A budget is a tool to map out your spending and plan for financial success.
Having a budget is not a rigid restriction on spending money, but rather a plan that you put in place to allocate your money to where you actually want it to go. It isn’t always going to be perfect and that’s okay. If you overspend or underspend you can always adjust your budget. Not every expense is going to be expected, and not every expense is going to be as much as you budgeted for. This leaves room for flexibility, but following the budget to the best of your ability is important. The idea of a budget is to prepare for the expenses you know you are going to have and make sure that your income can cover them with any saving or investing you have in mind.
Saving and investing are paramount to a sound financial budget. The idea of paying yourself first is integral for long term financial success. Most people have the philosophy to spend on their expenses first and save or invest what is left. That is a recipe for disaster. More often than not following this philosophy will leave you with nothing left over, but questions about where did all your money go! I ask people what their savings rate is or how much of their income is allocated to investments. It always surprises me the answers I get. Some have extremely high savings rates with most of their money stored in a rainy day savings account. That is a great way to help you sleep at night, knowing that you have the flexibility to cover your expenses should you have a sudden shift in budget or loss of income. However, most have very low to no savings rate at all. That is not a great way to help yourself sleep soundly at night. I ask why they haven’t been saving or haven’t accrued any investments and the answer is always “I don’t know where it all went!” Or “I have too many expenses, I can’t afford to save anything right now.” If that is the case for you, I highly recommend getting yourself on a budget, and if you already have one I suggest you revise it. Another suggestion is to track your spending, it is hard to create a budget that will actually work for you if you don’t know your spending habits.
Tracking your spending for a month or so should give you a pretty accurate picture of what you need to account for in your budget. This will also give you the opportunity to look at some of the expenses you have that you can reduce or remove altogether. These expenses likely won’t be your rent, car payment, or insurance. These expenses are the ones you can live without or at least be mindful of an amount you're willing to pay on such expenses like morning trips to Starbucks 5 times a week, or the large bar tab from the weekends out. These are expenses that when they aren’t preemptively budgeted for can lead you to spend more than you planned on and more importantly more than you can afford. I’m not saying don’t go to Starbucks or don’t go out for dinner and drinks because I love Starbucks and going out for dinner/drinks. I am sure you do too. I am saying, budget for them. Tracking how much you’ve spent on these things will give you an idea of what you can budget for. I hope that after tracking them you will be surprised at how much you spent in these areas and realize you CAN spend less on them, and budget accordingly.
The benefits of going through this process are numerous. The most important is the peace of mind you get from not having to question, “Can I afford this?” Or “Am I overspending?” This peace of mind will reduce stress and surely make it easier for you to sleep at night. It also will give you the satisfaction of knowing that your income is being put to use in ways that you see fit. Your budget should pay you first. A portion of your income should first go to saving or investing. Then you should still have enough income to cover your expenses. Not the other way around. This benefit isn’t something you will reap the benefits of right away. This is a long term, delayed gratification, action you will take now that will reap exponential benefits in the future. Paying yourself first opens the opportunity to invest over a longer period of time, even if it isn’t much. The amount of money you are able to invest isn’t as important as how early you start, and that is because of compounding. The beautiful thing about compounding is it works wonders over time and works in a truly exponential way. Compounding is the largest monetary incentive to start paying yourself first. Just ask the greatest investor of modern times, Warren Buffett, and he will preach the same: time is your most valuable asset in terms of investing.
Are you ready to track your spending, create or revise your budget, and start paying yourself first? If you are, you are on the right track to a brighter financial future. No matter your goals, values, or aspirations, investing for your future by following a budget is important not just for the financial benefits, but the freedom it grants you. Money isn’t everything and it isn’t guaranteed to make you happy, but it can give you freedom and the time to do what makes you happy. Make a budget you’ll stick to, pay yourself first, and sleep better at night knowing your money is taken care of.
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