Many people consider having a budget to be something for ‘lamers’ and ‘uncool’ kids. In today’s culture of instant gratification, materialism, and validation-craving, having the latest cool and trendy gadgets are almost a must in order to fit in. We do live in a highly capitalistic society after all.
Yet we must understand that capitalism is a pyramid system, with those on top controlling those at the bottom layers with the carrot and the stick. The stick being our justice system, laws, and tax code that is designed to favor the rich and powerful and the carrot being the little materialistic rewards they dangle down for the serfs and peons. The economy is also debt-fueled, according to NerdWallet the average American household has $130,922 in debt with $15,762 of that amount being credit card debt. And when you buy that latest iPhone or MacBook, guess what are you going to pay it with? That’s right, your credit card! Credit card debt is also the #1 way that American households lose control of their spending, and end up caught in a downward spiral that can seem nigh impossible to get out of.
Now let us review the Top 3 reasons to have a budget.
#1 Knowledge. Knowledge is power. How can we have power over our financial life when we do not even have the knowledge of how much we are spending every month? How can we possibly take charge of something which we do not understand? Do you know exactly where your money goes every month? Listen up closely, if you do not track your spending, it’s like being a bodybuilder who does not track his workouts, his calories, or his macros (protein, fat, and carbs)! A recipe for failure, guaranteed.
#2 Control. After knowledge comes the ability to plot out a course of action. This will allow you to take control of your financial life once you know, and I mean KNOW not guess, exactly where your hard-earned money is going. For example, a friend of mine who’s a typical hipster coffee addict found out he had been spending in excess of $500 a month on coffee and coffee alone! And he’s not exactly balling out himself, that’s more than 10% of his take home pay! For reference, $500 is my grocery budget for a month (I eat a lot, but I cook in bulk). Once I helped said friend with his budget, he allocated himself a monthly coffee budget of $250 a month, which while still excessive in my opinion, allowed himself an additional $250 a month towards his 401k or Roth IRA.
#3 Independence. When we do not have knowledge or control over our finances, it is impossible to have financial independence. I know a lot of you wish to escape the drudgery of the corporate world, and perhaps go into business for yourself- a path I highly recommend! Not easy, but worth it. However, let me tell you now that without a budget you will NEVER achieve financial independence. There is no independence without discipline, and having a budget is the FIRST step in achieving financial independence!
I will end this brief article here; future posts will deal with topics such as the best budget apps, simple budget tips, and how to achieve inner discipline in order to properly catalog and plan your expenditures.