Why do budgets have such a negative connotation? It seems like any time you start to talk about budgets, people put up the defenses and fight to avoid it.
I’ve had several different scenarios lately where the client needed a budget to dig out of a financial hole from a job change or needed a retirement budget to allow for making the final projections on their ability to retire. Yet, it always seems that starting a budget is a monumental mental hurdle for people regardless of how important it is to solve the problem or finalize a retirement picture.
But a budget is not designed to be something feared and loathed, but a tool that allows you to manage your finances. I also like to think of a budget as a spending plan instead of some cruel device that controls me and doesn’t allow me to spend money. I’m currently facilitating Dave Ramsey’s Financial Peace class as a Wednesday night study through my church. This is an awesome class that teaches some important financial skills that many people have never been taught and wouldn’t be taught without this class, but its teachings revolve around a budget. Why is that so important? Dave’s opinion is that you have to give every dollar a name and purpose. Without every dollar being dedicated to a purpose, money seems to disappear and not accomplish the goals you desire and work so hard to achieve.
The skill of budgeting is not something that you learn over night, so it will take time. I feel it takes at least 3 months to get your monthly budget under control and probably a full year to build out a reliable budget. It takes a year to capture all the annual expenses that people forget about like vacations, Christmas, annual insurance premiums, birthday presents, etc. While individually, some of these items don’t seem too big, collectively they can be 10% of an annual budget. That’s enough to derail anyone’s plan.
Most people want to retire as soon as they are financially secure enough to retire. How do you know if you will be financially secure without a spending plan? That requires us to project your annual budget out into retirement. A small miss or overspending can be amplified over an average 18-year retirement that is only getting longer with increases in medical treatments and healthier living. I was recently approached to help a young client plan to semi-retire at an extremely early age. In his case, we will have to project his retirement for probably close to 50 years. If we don’t have a good conservative budget for his yearly spending, how can we be sure he’s saved enough to make it that far while living the lifestyle he is accustomed to?
My advice is to start now and use technology to help you take back the control of your money. We provide our clients with an easy budgeting tool. It’s amazing how simple the process can be. You set your initial budget and connect your spending sources (bank accounts, credit cards, etc.) With some time and learning, the system starts assigning transactions to the budget categories. You can then monitor monthly spending and have a reference for spending over time. With this knowledge, you have the power to make needed changes and live with the assurance that your money is going towards its intended goal.