As a forgotten Excel file on your desktop or a crinkled bit of graph paper buried beneath bills on your desk, your budget may not seem like much. But it’s worth more than its kilobytes of memory or weight in paper. It’s a high-performance multi-tool that helps you track your finances, establish goals, and achieve your financial dreams.
Two-thirds of Americans run their households without one. If you’re part of this majority, it’s time you discover why the budget is so important to your financial success, so let’s take a look at each of the household budget’s functions.
Your Financial Barometer
Maybe you have memories of your grandfather tapping the glass of his barometer to see where the needle points. He wasn’t being fussy. As a meteorological tool, the barometer predicts subtle changes in weather patterns by measuring the air pressure with some degree of accuracy.
When it registers a rise in air pressure, meteorologists (and grandfathers) can forecast fair weather in the near future. Low pressure, on the other hand, suggests rain and storms are on the way.
Your budget has similar predictive powers. When you keep track of your purchases, you can foresee the future of your finances.
Overspending is the low pressure of your budget. You may have enough savings set aside to accommodate a few days, weeks, or even months of spending more than you should, but unchecked spending promises unstable times ahead. If you spend more than you make, without making any changes, debt and online loans are in your future, and you’ll have to face these debts in loans and credit card charges very soon.
Most of us know we shouldn’t lease that new car or buy the most expensive iPhone when we don’t have the savings for it. But overspending doesn’t always come in the big, obvious packages. It can be those little purchases that, on their own, won’t do much damage, but taken together, impact your finances negatively.
As a financial barometer, your budget’s greatest success is revealing the subtle spending habits that don’t immediately lead to debt but that can limit your overall financial growth.
Let’s say you crave a pumpkin spice latte from time to time. On its own, a $5 latte won’t make a huge difference to your finances, but once you tally up several trips through the Starbucks drive-thru every month, your budget exposes the true cost of your caffeine addiction.
Your Financial Compass
A normal compass, with its magnetized needle, will always point north. It’s an invaluable tool for anyone who needs to navigate open waters or unblazed trails, as it indicates constant direction regardless of where you are or where you’re going. Mariners and hikers would never leave the safety of the marina or their camp without it.
Your budget gives you a similar sense of direction, and you should never manage your finances without one. Unfortunately, its needle doesn’t hold as true as its navigational counterpart.
Your desires — not the Earth’s magnetic field — set the pace. If you don’t prioritize saving, then your financial compass points towards spending cash on that new iPhone X instead of a retirement plan. If your financial ‘true north’ is saving more, then your compass points towards investment opportunities and specialty bank accounts.
A budget determines what your goals are by revealing where your financial needle points. The act of organizing your finances this way forces you to think about your ambitions in life. Whether your goal is to pay down debt or fund an extravagant holiday, your budget gives a sense of purpose to your spending and saving, so you have a better time of achieving your objectives.
Your Financial Map
A compass is at its most effective when paired with a map. Used together, these instruments will not only reveal where you are but where you want to go and how to get there.
Let’s return to the lattes. Once your budget reveals how much you spend on these drinks, you can determine if it helps or hinders your financial goals. By outlining these expenses, a budget can show you what you need to change if you expect to arrive where you want to be.
It doesn’t matter if it’s just $20 a month or something closer to $200. Your budget will bring it to your attention, and you can decide if you should avoid Starbucks and redirect the money into other purchases, bills, or investments. You can cut out the $200 entirely and invest it instead, or you could put it into a holiday fund. And if you miss the sweet taste of your favorite treat, you can always try making them from scratch.
It can also help you determine how to bridge any holes in your budget. Let’s say there are no Starbucks trips to cancel, but you’re expecting a pricey vet bill after your cat swallowed an elastic band. A budget shows you how much you’re missing. That sum can guide you as you look for a reliable source for online personal loans that advances exactly what you lack, so you don’t have to choose between Fluffy’s medical care and your finances.
As your finances’ barometer, compass, and map, a budget is an important tool guiding the way you spend money and achieve goals. It’s time you take advantage of the work it does. Take the time to work up a budget, and see how it can guide you away from debt and towards financial security.