What Do You Learn From Budgeting?
Though the thought of actually making a budget might sound as appealing as having a ball and chain attached to your wallet, it can actually be quite a liberating experience. According to Erin Baehr, a certified financial planner practicing in Stroudsburg, Pennsylvania, and Chester, New Jersey, "Many people think of budgets as something negative; something constraining or confining. But actually, having a budget, or spending plan, will give you freedom. A budget simply reflects the reality of your spending, while keeping it within the parameters of the money available to you."
The Categories You Spend In
If you don't keep track of your spending on a regular basis, chances are there's at least a few line items where there's a wide gulf between what you think you spend and what you actually spend. For example, Baehr says "People are usually surprised to realize how much they spend on those quick drive-through snacks or meals, how much holidays really cost, and how much they spend on gas for their cars." Though one trip through the drive-through might not break your budget, if you do it frequently, a large number of small costs can add up. Only after you start tracking your spending will you realize how much your guilty pleasures might actually be costing you.
One-Off Spending Adds Up
If you don't track your spending regularly, you're likely to underestimate the costs of one-off items -- things that don't come up on a regular schedule, like car and home repairs. When working with clients, Baehr says the first time they work together to set a budget, "we'll come up with a monthly spending number, compare it to the actual take-home income, and realize there's a big gap somewhere." Setting a budget and tracking your spending reduce the gap between perception and reality.
What Spending Says About Your Priorities
Not only does keeping a budget help you understand where your money is really going, it also helps you align your spending with your priorities. Without a budget, your money just flows out of your accounts without direction. When you make a budget, you can ensure that how you spend your money matches your priorities. "Let's say you enjoy eating out as a family," says Baehr. "A budget isn't meant to tell you not to do that, but rather to decide how much of your money you want to choose to spend on that. Once your amount is determined, you can go ahead and spend in that category however you please, without being anxious that you are spending too much or feeling guilty that you shouldn't be spending at all."
It's Okay to Spend -- Within Reason
Budgeting not only allows you to feel secure that you're prepared for unexpected expenses, but it also gives you the freedom to enjoy spending the money you've budgeted for entertainment or other fun things without worrying that you should really be putting that money to use elsewhere. "Having money set aside for those unexpected repairs takes away a great deal of anxiety," observes Baehr. "Deciding ahead of time how much should be spent in categories like entertainment can allow you to enjoy yourself without worrying about what other category you are shorting." Having a budget also carries the added benefit for couples that once the budget is set, you can hold each other accountable. When couples have a hard time agreeing on how the other spends money," says Baehr, "having a set amount built into the budget that each spouse can spend no questions asked reduces arguments."