Ah, the necessary budget that we finance bloggers love to promote. It’s usually part of our blog somewhere with examples and templates. (Here’s my template.) But have you ever thought about the pros and cons of budgeting? Or whether it’s really good at all?
I budget because I am incredibly anal about being organized. I would say it’s my best skill. I like knowing exactly what I spend and save. However, after a long period of time, budgeting can get a little mundane and the momentum wanes. That said, I think recognizing when it’s getting boring is key to my budgeting success. I’ll change up my budget by formatting it differently or spend some time reorganizing it to refocus and re-motivate me.
But my short answer to the question of whether to budget is not so simple. My answer is that it depends on who you are and how you use money. Here are my pros and cons of budgeting.
1. Budgeting earmarks your money
When you budget, you decide ahead of time how your money is going to be spent (essentially earmarking it beforehand). You intentionally decide how to spend, save, and give your money. You create a monthly financial plan. It’s the opposite of being impulsive and arguably the best way to really work toward your financial goals. Consequently, you’re more responsible with your money. Additionally, it limits the opportunity for careless financial decisions, assuming you stick to the budget. Finally, it helps you think about your financial goals every month and for the year, assuming you operate on monthly and yearly budgets.
2. Budgeting is an effective tool to get you on track
If you’re trying to get out of debt or reaching for a specific financial goal, budgeting can be an incredibly useful and helpful tool to help you get there (and keep you motivated). Particularly if you’re a spender, budgeting can be a way for you to make a plan ahead of time and limit any extra spending. It can be a tool to help you change and shape your financial habits.
3. Budgeting keeps you organized
Budgeting keeps track of what you do with your money. Although this isn’t the primary purpose of budgeting (the primary purpose being to stick to a financial plan for the period), a secondary benefit of budgeting is that it tracks what you actually spend (assuming you account for what you actually spent in your budget). If you want to know what you spend on groceries this month compared to last month compared to last year, it’s all there. There is power in knowing. By budgeting, you can discover areas where you can cut back. For example, after setting certain expected spending for the month, you may find that you want to spend more in one area. Knowing this allows you to be intentional with your decisions for your money in the future.
1. “Budgeting is like being on a diet”
Have you heard this saying before? I heard something like this on The Suze Orman Show. Being on a diet is restrictive and ends at a point in the future. It creates yo-yoing and usually doesn’t last. In order to lose weight permanently, you need to make a life style change. Like dieting, a budget is limiting and doesn’t change your financial habits or financial lifestyle. It says when you can and cannot do things and is really hard to stick to. Arguably, it takes changing your thinking about money to really change your financial health, and that isn’t done by being on a restrictive budget.
2. Budgets only work if you stick to them
This seems obvious enough! You’re supposed to decide what you’re going to spend for the month and keep track of what you actually do spend. But if what you plan on spending and what you actually spend don’t match up, you’re just tracking your spending and not budgeting. There is a benefit to tracking your spending, but that is not the main purpose of a budget. A budget is supposed to be your financial plan for a specific period. If you don’t stick to the plan, you’re not using the budget effectively.
3. Budgeting takes a lot of time
Budgeting requires that you take financial inventory of your finances in addition to constantly updating and projecting your expected expenses for future months. I was really excited when I created my first budget and spent a lot of time perfecting it. But as the months (and years) go by, it’s less glamorous. If I don’t take the time to closely budget every expense every month, it all falls apart (and I end up tracking my expenses instead of planning what I’ll spend ahead of time). The bottom line is that you have to be committed.
So, which side are you on – budget or no budget?
What is your personal experience with budgeting?
Are you naturally frugal and able to reach your financial goals without a budget?Do you have an pros and cons of budgeting to add?