Work and Wealth
We all know we should budget, but why?
All too often when discussing personal finance or listening to experts share their financial wisdom the concept of a personal budget is one of the most commonly offered pieces of advice. But no-one ever looks at the ‘why’ of your budget. Making sure you have a ‘why’ for budgeting is necessary if you’re going to stay motivated. Your questions before diving into a budget should be around ‘why create a budget?’, ‘what benefit will I get?’, ‘how can base it around my strengths?’
If you don’t have an answer for these, then you’re setting yourself up to fail.
Why Create a Budget?
Budgets are a great tool to assist in measuring how your personal finances are performing, the important thing is to understand it’s just a tool, not a complete solution to your finances. The tool needs to be created and modelled into the form that supports your finance goals, the common goal is to improve your financial situation.
What you need to be clear on is exactly why you need the budget. For some, it could be a system to be held accountable; the process of having to measure income and spending against written, pre-determined amounts will mean they don’t spend more than they should, with the budget the tool to act responsibly.
For someone else it could be to identify problem spending habits which they can adjust and the budget becomes a tool to set small goals to work towards, such as not buying new clothes every week or month. For others it may be about having a way to be in control, the system means they have certainty of their finances. By having a ‘why’ it attaches a purpose to regularly working on your budget.
What Benefit will I get?
A budget should work towards helping with achieving financial goals. If the budget isn’t contributing towards those goals then it’s not worth continuing. It’s important to adopt a budgeting strategy and process that helps work towards your financial goals, whether this is saving for a house or holiday, building an emergency fund or to build those savings to give you more freedom or retirement, it must assist with these goals. Use the budget process as a tool to keep your eye on the prize of buying that house, going on that holiday or the peace of mind from having cash sitting in the bank for an emergency.
How can it play to my strengths?
When setting out to budget you should play to your strengths, not your weaknesses. It’s already hard enough to manage your finances, you don’t need to be targeting your weaknesses with a massive spreadsheet or complicated system. It’ll take you longer, be less enjoyable and increase the chance you’ll give up.
The best part is, once you know why you want to budget, what financial goal you want to target and what benefit you’ll get, you can then select a budget style that works for you. It may be an app on your phone or a spreadsheet, perhaps identifying your largest expenses which you should reduce or even a ‘temptation limiter’ such as putting cash in envelopes.
Having a budget ‘why’ is vital to ensure long term results and success. Remember the budgeting process is a tool, you need to know why you are using it to get the outcome you want, adopt the method that works for you not the one everyone says you must!
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