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What we’ll cover:
If you’re reading this article, you probably feel like you should be budgeting. But you might be wondering “why should I budget?”
And as regular contributors to budgeting, we’re fully aware that there’s a lot of noise around this topic. How to budget, different budgeting strategies, how to budget for [insert life event]... the list goes on.
But there is a good reason for this. The advantages of budgeting can be powerful, and those advantages often go beyond just the financial ones. But let’s start with those anyway.
If you’ve set and tracked a budget before, this may be one of the main reasons you chose to do so. Humans process a ton of information each day, and trying to keep a mental tally of every purchase can be nearly impossible.
It may seem obvious, but tracking a budget can remind you of all of your purchases, recurring and otherwise.
According to Jill Schlesinger, CFP® and host of the Jill on Money podcast, “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.”
That’s not to say those eye-popping costs are a bad thing (#noregrets on going all out for that vacation). But seeing them can help shed some light on your life and your finances.
The sheer act of setting a budget is all about prioritizing. How much money do you have for the month and where are you going to spend it?
Sure you have to account for recurring expenses like your mortgage/rent, utilities, etc. But once the basics are checked off, it’s up to you to decide where you’re going to spend (and save) your extra money.
Ideally your budget aligns with your broader life priorities and financial goals. Are you going to spend more on vacations, or invest in a rental property? Would you rather boost your retirement fund, or give a little more to charity this year?
Getting insight into your spending. Check.
Setting priorities for your spending. Check.
Another financial benefit? Creating a budget could help you set and work toward achieving long-term goals. When you’re just starting out, this may mean establishing your emergency fund.
Whatever your goals, set a tangible dollar amount for each of them, and then start saving. One of the best things about a budget is that it can help you see how money is flowing in and out of your life (see point number one). And if you want to save more, you have to know what sort of money you’re working with.
As with other goals in life, keep your eye on the prize and track your progress. Budgeting for your goals can help make your dreams a reality. (It’s cliché, but true).
In general, we all want to feel like we’re in control of our life and our finances are no exception.
Yes, a budget can feel constraining. But the truth? You set and control your budget in whatever way works best for you.
It’s easy to feel bad about spending hundreds of dollars a month on food delivery. But there are plenty of bad cooks whose favorite restaurants know their orders by heart. Budgeting is made for them (and the rest of us!) to plan for the late night pizza that brings so much joy, without having to feel bad about the cost.
The idea is that if you’ve planned for the cost, you won’t feel bad about, well, actually incurring the cost.
Your budget and spending are in your control, so spend your money on what matters to you.
If you’ve ever been stuck in a morning commute (aka you’re a human being) thinking about that 9:30 meeting, your kid’s soccer game and grocery shopping… you’d probably appreciate some occasional headspace.
The beauty of setting a budget is simple. Once you’ve allocated money for your expenses and savings goals, thinking about how your money is flowing in and out of your life it becomes one less thing to worry about. And that can free you to focus on the more important things in life (like that soccer game).
As Schlesinger notes when it comes to the benefits of budgeting, “perhaps just as important will be your ability to feel more in control of your financial life, reduce your financial stress level and use that energy towards more productive and fun aspects of your life.”
If you’re at a loss with how to talk to your family about money, a budget can be a place to start.
According to Schlesinger, “While conversations around budgeting can be difficult, they can also be a way to improve intra-family communications (between you and your partner, you and your kids or you and your parents) about money.”
Looking at your budget can serve as a reality check for all parties involved about how much money you have, where it’s going, and what your shared goals are as a couple or family.
Schlesinger’s has a few tips on how to approach the conversation.
“To facilitate the process, be sure to set aside time when everyone is focused. Then set some ground rules: no judgments, no raised voices and no dredging up past foibles. If the conversation devolves into an argument, table it and come back when both sides are calm. “
Truthfully? Budgeting is as important as you want it to be.
Some of us obsess over budgeting for the reasons above, while others may be totally turned off by the idea of creating a budget.
But if you think you might actually enjoy some of the benefits of budgeting, go ahead and give it a try. You’ve got nothing to lose and just maybe (maybe), you’ll get something out of it.
This article is for informational purposes only and is not a substitute for individualized professional advice. Articles on this site were commissioned and approved by Marcus by Goldman Sachs®, but may not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA or any of their affiliates, subsidiaries or divisions.