Sure, there are those out there that are perfectly fine out there without having a budget. They however are very likely the type of person that already has a very controlled manner of spending habits but even they could learn a thing or two by keeping track of their finances with a budget. A budget can have so many positive side effects.
One of the most important things that a budget provides is a sense of security. A budget gives you a deeper sense of security by reminding you constantly about how much you can spend without getting yourself into trouble. If you are checking it as one should, you will always have a good idea of where you stand each day of the month. You’ll know immediately if you have the funds available to go a little wild. You’ll also know when you should take a pass and not join the guys on the night on the town and instead opt to meet up with them the next morning for a cheap breakfast.
Another important role of a budget is to show you where you are spending the most money. Hell, it was only a year or so ago that the wife and I were bleeding money through our eye balls through random trips to the local Walmart. Thanks to the budget however, we were able to zero in on it quickly and now we hardly spend anything besides our once a week grocery trips. It’s allowed us to save an extra $300-500 per month. That’s an extra $300-500 that go directly towards our investments that can help us retire even earlier.
On the flip side, budgets can have their draw backs. If done incorrectly, a budget can shoot you in the foot. If when a budget is being created, the amounts have been entered wrong or unrealistic expectations have been set, a budget can go South really quickly. It can also provide a forbidden fruit factor to life. You may suddenly find yourself wanting to buy more because you feel constrained on the budget.
I feel however that when all is said and done, a budget is a great tool that has far more pros than cons. This is especially true when it comes to the savings that can be made and diverted towards an investment account that grows passive income. I always try and think about the passive income I could make off of the savings. For instance, a $100 savings in the budget could result in an investment of $100. That $100 invested in a 6% yield dividend stock could pay you $6/year. Where $6 isn’t much, that many times over month after month can produce some really excellent additional passive income over time. The snow ball rolls faster and faster the more you roll it.
For those of you who have never made a budget before, I strongly suggest that you do so. If you have any trouble or need an idea of how to start it, I’ve attached a copy of my own budget below so you can see how a budget spreadsheet can be organized. Mine is mainly built around investing and keeping track of net worth but it does a heck of a job putting everything in perspective so that I can tell each month how I fared in comparison to the previous month. You'll also notice that I don't break down my credit card charges into what I'm spending money on. Instead, I keep track of that by using online tools through my credit card company. I believe that most online credit card statement trackers have about the same capabilities and one could do the same with little/no effort. Thanks for reading and I hope to hear from you all soon.