Whenever I work on my budget or help someone else work on their budget, I like to make a spreadsheet that will show what will happen in the long run with decisions that are made today. For example, I will create a spreadsheet that will show what kind of difference investing $200 a month vs $300 a month into a Roth IRA will make after 25 years. I had one person I was working with tell me that they liked my numbers and appreciated the fact that I had gone through the work to make the spreadsheet, but they didn’t think that it was a good representation of reality because, “what if life happens?” Actually, that’s kind of the whole point of a budget in the first place! When life happens (because it will), you can turn to your budget and make wise financial decisions instead of taking on debt.
One of the things you need to have established in your budget is an emergency fund so that you can pay for emergencies without having to use debt. Ultimately, your emergency fund should be able to cover a few months-worth of expenses. When I coach, I coach the Baby Steps that Dave Ramsey teaches, so that emergency fund should be built up before money is being invested. So, with my example, even if life happened to that person, then it really shouldn’t affect their investing all that much because they should be able to cover life happening with the money in their emergency fund.
The beautiful thing about a budget is that it is flexible and can adapt as your situation and goals change. As you go through different seasons of life, your financial goals will change. Maybe you get a large pay increase at work or you have your first kid or you decide to open a business, I don’t know, it’s your life! My point is, as life changes, so do our financial goals. As life goes on and your financial goals change, you can use your budget to guide you in shifting into those new seasons of life and reaching your new financial goals. If you don’t have a budget and life changes, you might find yourself spending more money than you’re making because you’re not tracking it and then all of the sudden, you’re in credit card debt or you’ve got a $500 monthly car payment for the next six years.
Budgets are never set in stone. Ultimately you control your budget; your budget does not control you. Yes, your budget might help to keep you from buying things you don’t need with money you don’t have, but that’s called self-control. Your budget’s main purpose is to guide you in your financial decisions so that you can ensure that you have enough money to pay for today’s “survival” expenses, that you are financially prepared for tomorrow, and that you can have fun with your money.
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