Whether you’re doing it or not, you’ve likely been barked at by radio commentators and rich uncles alike about how you need to budget. We’re not here to say they’re wrong (we’ve even written some articles on how to create a perfect budget), but we want to help you understand why you should do it and how you can seriously take advantage of your money.
The financial advantages
Gives you a better understanding of your spending structure.
We don't want to be a Captain obvious but tracking a budget reminds you of all your purchases.
Nowadays, every person processes far more information than they had before, so keeping in mind every expense is impossible. Importantly, seeing costs laid out can and does shed some welcome and unwelcome light on your finances.
Jill on Money podcast says: "tracking how money comes in and out of your household can yield great benefits. In addition to understanding how much you spend on discretionary expenses, like housing costs and utilities, it's the non-discretionary ones that may be eye-popping."
Helps you to prioritize your spending
Not sure how much money you have until the next payday and what you should be spending it on? Sure, you have a separate account for your utilities, loans and all other recurring expenses. But once you have paid all the debts you have to decide what's next? Save, invest or buy another pair of shoes?
In the ideal world, your budget is in line with your financial priorities and goals. Do you want to splash on travel, or would you think about boosting your KiwiSaver account instead while you wait on COVID to settle?
Helps you to keep an eye on a prize
Yes, it hurts when you realize that your paycheck doesn’t cover a brand new iPhone or $300 Creuset frying pan but when you remind yourself about some long term goals: down payment for your mortgage, retirement or having kids, it’s easier to walk out of the store empty-handed.
With the proper prioritization, you can see how your dollar fuels your dreams, and that’s the best vaccine to indulgent expenses.
Helps you to get a happier retirement
Your fund manager might offer you the world in your retirement, but for many people putting your golfing every day in their old age simply isn’t realistic. Be careful to compare how much you need to retire and how much you will really have.
With additional topping up of your KiwiSaver, you build a nice nest egg. Sometimes it means you have to sacrifice a little now, but it will be worth it down the road.
Other advantages
Gives you control
Most financial stress comes from uncertainty. Uncertainty is often driven by a lack of planning. The best way to get rid of guilt and all of those crappy emotions is to build greater self-awareness of your finances, so you can keep yourself on track.
Frees some headspace
With devices always within grasping distancing, we humans are processing more information and making more decisions than ever. A budget means one less thing to think about. Once you allocate your income and outcome, you are aware of your money flow, and you can focus on what’s important right now.
Simplifies conversation
It’s pretty common knowledge that money fights tend to be one of the biggest problems in marriage. It isn’t always easy to talk about money with the loved one, but a budget is a pretty good place to start. Looking at the money flow is a reality check for all the parties involved about how much do you have and what goals you can really get to right now.
So why should you budget?
Budgeting is one of the most important financial habits you can adopt. It helps you to achieve your goals, take your life under control and sometimes save your marriage. You have nothing to lose, so why not to start?
