Using Budgeting Worksheets

Worksheet budgeting can clarify your thinking.

Thinking Logically

Committing a budget to a worksheet requires you to think about your money in an organized way. To set up a budget, you have to identify where your money comes from and where it goes. When forced to record all of your spending, you just might be surprised by all the different ways you spend money impulsively or without planning. According to registered investment adviser Elisha Zarecki of Maryland, "Making a budget allows you to think logically about your finances instead of buying on a whim you may later regret." Tracking your spending and comparing it to your budgeted amounts can clarify your behavior and give you the chance to thoughtfully change your spending habits.

Making Decisions

Zarecki points to a Harvard University study conducted by Sendhil Mullainathan and Eldar Shafir in which low-income people were asked to think about money before taking an IQ test Their scores dropped significantly. The researchers explained this phenomenon with a concept they call scarcity of attention, meaning that when we are focused on one thing, in this case money, it is hard to focus on another task, the IQ test. As Zarecki puts it, "The study suggests that poor people tend to make poorer decisions because they are frequently distracted by questions like how they are going to put food on the table or pay the bills. Therefore, the key to making better decisions is to make them at a time when we are able to focus. Creating a budget is a good example."

Planning Ahead

Budgeting gives you the opportunity to plan ahead and therefore better control your spending. "The best time to decide when to buy something isn't at the mall while admiring the latest styles and gadgets. It's bad planning to decide which food to buy when you're hungry in the candy aisle at the grocery store," says Zarecki. A budget worksheet can be a great planning tool. It allows you to set intermediate and long-term goals so you know how much to put aside each month to attain them. You might be planning to buy a home or car, take a vacation or save for your retirement. Whatever your goals, the budget makes clear that reaching them requires socking money away each month. By knowing how much to set aside, you can confront any temporary sacrifices in your lifestyle in order to meet your life's goals. It might be easier to resist a tempting purchase when you know the money you save will go toward the dreams you've planned.

Gaining Confidence

Creating and following a spreadsheet budget builds confidence in several ways. First, you learn to master financial software. This can be a springboard to other software-related tasks, such as preparing your tax return or keeping the books for your home business. Moreover, you gain the confidence that comes from tackling and solving a problem - how to make your money do what you want it to. And as Zarecki argues, "Many new budgeters initially fail to follow their budgets. The experience of learning from and correcting your mistakes can be a great confidence booster." Life offers a never-ending set of challenges, but succeeding at spreadsheet budgeting might help poise you to greet the future with new confidence in your abilities.

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