3 Reasons You Need A Budget And 3 Reasons You Don’t
Ahhh, the budget. There are a lot of folks out there saying you need one. They’re right. Many people do! There are a lot of other people out there saying you don’t. They’re also right. Many people don’t! Me? I’ve never been a budgeter, but what works for me may not work for your and vice versa. So where do you stand? Are you the type of person that needs a budget or the type of person who doesn’t?
3 Reasons You Need A Budget
You probably need a budget if…
1.) Your income and expenses are roughly comparable
Are you living paycheck-to-paycheck? If so, you almost certainly need a budget. Do you have any expensive habits you know you should kick but you’ve just never gotten around to it? Creating and strictly adhering to a budget will quickly expose just how much damage (and I hate to use a cliche here but I’m going to anyway…) that daily $5 latte is causing to your finances. It will also help keep you disciplined in the face of temptation if you have a written budget you’re trying to adhere to. Sometimes just writing a goal down can make all the difference in the world.
2.) You have trouble saving money
A lot of people mean well but just never seem to be able to “find” any extra money to save at the end of the month. Well, that’s a problem. Savings shouldn’t be something you “find” money for at the end of the month, it should be a concrete part of your budget. If “save 10% of my paycheck every month” is built into your budget, you’ll probably find it much easier to actually accomplish. This doesn’t apply if you really are strapped for cash through no fault of your own, of course, but a surprising number of people who live paycheck-to-paycheck do so because of poor planning and not any actual shortage of cash. If you have trouble saving and don’t have a budget, start one. You have nothing to lose and you might be surprised where your money is actually going.
3.) You’re behind on any bills or have paid any overdraft within the last 24 months
Getting behind on bills is an obvious red flag. On a somewhat similar note, paying overdraft fees could be a sign of poor planning. Even people with healthy incomes can occasionally owe overdraft fees due to poor cash-management habits. If you aren’t on top of your income and expenses enough to make sure your checking account is adequately funded at all times, you probably need a budget until you get a handle on things.
Bonus! #4) Your income is unpredictable
Maybe you’re self-employed. Maybe you’re a business owner. Maybe you’re <insert reason here>. Either way, if you can’t be sure exactly how much money you’ll have coming in each month it might help to have a detailed budget of your expenses to avoid any surprises. There are a lot of good articles around the web on how to deal with unpredictable income. Read them.
3 Reasons You Don’t Need A Budget
But not everybody needs one. The following three bullet points apply to me specifically (well, except the last), but there are surely many other reasons a person may choose not to budget.
1.) Your income is much higher than your monthly expenses
I have the good fortune of earning a solid income while simultaneously living in a relatively low cost of living area. That means it’s almost impossible for me to over-spend without making a conscious effort to do so (fancy car, multiple plasma TV’s, excessive bling, etc). Bottom line: a few $5 lattes per week isn’t going to put me in the poor house. Because of this, I don’t feel the need to track every penny. Sure, I have to watch out for things like overspending on vacations, putting down too many $80 bottles of wine at dinner, and getting the best rates on my auto insurance, but for the most part I don’t need to pay any attention to day-to-day spending. If you find yourself in the same situation, you probably don’t need to budget your day-to-day expenses. It’s a good position to be in.
2.) You don’t have trouble saving
There are plenty of people out there earning huge incomes with nothing to show for it but consumer debt. I just can’t comprehend how somebody making $250,000 per year could have a negative net worth, but it’s not unheard of. If you can’t save on an upper-middle-class income, you most definitely need a budget. If you have no trouble putting away 20% or even 30% of your income every month without one, don’t sweat it.
3.) You’re Bill Gates
He’s probably fine. Seriously, I find budgeting generally becomes more and more appropriate as the gap between income and expenses becomes narrower and narrower. If spending an extra $20 is going to put you in the red, you need to track every penny. If you can drop $1,000 without it being a problem, I think you’re fine.
Are there any other reasons you choose to follow a budget? Any compelling reasons you feel it’s unecessary? Tell us in the comments below!