Budgeting is the most important step in designing any financial plan or financial blueprint. In working with our clients, this is one of the first steps we discuss, because it’s so vital to your success. I know—budgeting doesn’t sound like fun at first, but give this a thought…
What if you could find an extra $100/month to save and cut out of your current budget? This is by doing things such as cutting that extra cable or satellite box that nobody watches anyway, eliminating the expensive movie channels, or getting rid of magazines, newspapers and other premium subscriptions that you forgot you were even paying for!
Do you know what that $100/month will turn into after 20 years at a reasonable rate of return?
Try $71,000 dollars.
Are the movie channels you hardly ever watch worth that to you? More importantly, where else can you save now to ensure your retirement later?
You’ve heard it said many times from many different sources that budgeting is important. It’s very true.
Without proper budgeting, how do you know what you can afford? I don’t mean what you can physically buy—rather what can you afford in order to properly prepare for tomorrow? Just because you have the ability to buy something doesn’t necessarily mean you can afford it. An accurate budget will truly show you if you can or can’t afford that vacation, or brand new high definition television. And in staying true to it, you can rest assured that tomorrow will be set, and your retirement is on track.
It doesn’t matter if you bring in $30,000/year or $3,000,000/year. Statistics show that your lifestyle needs will tend to expand and spending will increase to absorb the earnings growth. In other words—the bigger your income—the bigger your expenses.
Just look at the successful businesses today. Almost every one of them operates with a realistic, actionable budget. Businesses that don’t budget are usually unable to control their expenses year after year. They have net profits that can fluctuate in negative ways, and cannot effectively manage their company. A record income this year could still result in bankruptcy in five years, because they failed to plan for the future. The same can be said of families and individuals.
Businesses budget, successful individuals budget, and if you want to be in control of your money and life, we encourage you to consider it as well.
Why Doesn’t Everybody Budget?
According to many, budgeting is just another chore that has to be done. You have a busy life full of responsibilities and other work, adding yearly budgeting to that list can seem annoying and unnecessary. On top of that, the thought of budgeting can have a negative connotation to it—indicating you don’t have enough money and resources—meaning you need to ration, or that you must make significant lifestyle cuts and give up the things and activities you enjoy.
The reality is, the kind of budgeting we’re talking about doesn’t mean you are “on a budget” for lack of income, or that you need to be extremely nitpicky about every single line item. It only means you are being responsible and have a general idea—more specific in certain areas—of where it is your finances are going, and where you can make adjustments in order to properly prepare for the future.
Budgeting is a basic and effective tool for controlling your money—and is a common habit of those who experience success. Done right, it can enhance your lifestyle by giving you a greater peace of mind and more security in the future. Working with a budget enables you to allocate your resources to where they need to be, and ensures that you’ll properly manage the necessities from the wants, ensuring you have enough left over for the good parts, the aspects that make your life happy. It saves you from overspending, getting into unnecessary debt, and shows you the areas where you can afford to spend for some of the extras in your life.
Top 10 Benefits of Budgeting
If we haven’t already convinced you, take a look at what we, and clients, consider to be the top 10 benefits of budgeting in your life…
- More effective setting of goals and a higher rate of achieving them
- Greater control over your money and investments—distinction between wants and needs according to what you can afford
- Higher savings rates – which can compound into big money (Just look at the example at the top)
- Less worry and stress over money issues
- Efficient communication, reduced arguments, and a greater deal of money accountability with partners
- Reduced late fees, unnecessary debt and expenditures—meaning more money for you
- Provides an umbrella for rainy days—emergency costs won’t come as a surprise or be nearly as stressful
- Heightened security in the future of a strong and peaceful retirement
- Shows areas where you can improve, where you need to increase income, or where you need to reduce or eliminate certain expenditures
- Enjoy the good things in life even more—since you know you can afford it and have budgeted for them
The benefits could go on but it should be very apparent by now that budgeting is important and necessary for everyone who wants to be serious about their money and in control of their financial picture. It’s the first step in being responsible for your future, your goals, and your life.
Now—what could be more fun than a little budgeting work today to exponentially compound your money in the future?
If any of you would like some help with starting a budget, feel free to schedule an appointment for a complimentary game plan session. We’ll get you a template to start, as well as providing recommendations and ideas for getting your financial life on track.
For an even greater in-depth look, you can take our “Master Retirement Course” for full budgeting techniques and retirement calculators.
Be Happy. Make Money. Retire Well.