Why do we need to be so detailed and log all our income and expenses? Isn’t it enough that we know how much we earn and control spending?
No, it is not enough. Knowing what we earn and controlling spending does not take into consideration future spending, periodic expenses, unexpected expenses (although there is no such thing as unexpected expenses since ALL expenses can be forecasted), future plans, goals and dreams. If we do not plan and manage a budget, but only control spending, once any of these future expenses come into play, we will not have enough disposable income to cover them and we may be forced to either give up on our plans or go into debt – psychologically, going into debt is much easier, also practically it is much easier because the bank can be very generous with its money since the payback is big.
Not fulfilling our plans and dreams is a much more difficult proposition. What? We’re not going to take that family vacation to Europe? What? Not trade in our 3 bedroom apartment for a beautiful house with a yard? What? Not drive around in a brand new Jeep or SUV? No way! Not after we have invested so much! So much time and money and sacrifice! No, we want something to show for all our hard work! We want all those around us to know that we have succeeded and that we are "movin on up".
When these emotions start welling up, it is very difficult to take a moment and think about the consequences: About the insidiousness of debt and it ever growing nature. True, we accomplish our plans but at what price? Not only are there the associated bank charges and interest, but now that we have debt, we have less disposable income to pay for the everyday things that we used to be able to manage just by "controlling spending".
If we have a budget, we know exactly what our current expenses are; we know for what future expenses we are saving and when the cash will be available. Trip to Europe – budgeted and the funds WILL be available next summer. New car - No problem. Every 5 years like clockwork. We will be prepared for those "unexpected expenses" like repairing or replacing your refrigerator or car or TV and we will be able to support ourselves when we retire. Knowledge is Power.
Planning and managing a budget gives us the ability to set priorities on our spending. Putting top priority things first (including future plans) and getting rid of the waste.
Our money is hard earned and limited so we must use it wisely.
We need to control our money and not have our money control us!
Mindy
In addition to a monthly budget, my wife and I actually have a separate yearly budget. This budget helps pay for random expenses such as family birthdays, weddings, events, etc. A vacuum dying and needing to be replaced can put some people in the red for a month and we definitely felt the pinch when that happened to us. However, when we started estimating how much we might need BEYOND our monthly budget to pay for strange expenses throughout the year, suddenly we had a much smoother year financially. Needing to buy clothes for work didn't mean we had to spend less in one month because we had already planned for that type of expense.
ReplyDeleteIts not an exact science, and the estimate will never be spot on, but it totally helps.
Thanks Thomas for your input ! You are absolutely right, including ALL of your anticipated and non-anticipated (think out of the box about what may need to be repaired or replaced)yearly expenses will makes the budgeting process successful and even exciting.
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