When someone tells you you need something, a natural response is “Why?”. Well, I’m here to say that you need a budget now, and I’ll even give you 8 reasons why. Before we begin, it’s important to check in with yourself about how the word “budget” makes you feel. People can get squirmish when they hear this word, feeling restricted, like a “penny pincher”, or cheap. I think it’s simply because they don’t realize a budget’s full potential. Regardless of your financial situation, I believe having a budget is imperative, not only to your financial success, but to living a better life overall.
Budget: Another Word for “Plan“
I don’t know about you, but without a plan I simply don’t achieve my goals. They become hot air that eventually disappears. Perhaps that’s why I love lists, writing them down, and checking in regularly on the progress. With a plan, there is always progress.
The Top 8 Reasons Why You Need A Budget
Why 8? Just because! There are endless reasons why budgets are a necessary tool to build the life you want. These are the 8 I’ll share with you today. By the end of this post, hopefully you’ll agree that you need a budget, now.
1. Take Control of Your Life
Life throws enough curveballs your way, so start equipping yourself immediately. Not tomorrow, not when you get a raise, not when life is in dire straits or you’ve won the lottery. Literally sit down today and take 20 minutes to regain control of your life. Regardless of your financial situation, you should always be aware of the facts.
What are the facts?
- #1: Know your monthly income and fixed monthly expenses
- #2: Know that life will cost more than you think it will
- #3: With knowledge and awareness comes prosperity and success
You’re already on the right path if you’ve completed steps 1-3!
2. Plan for the Unpredictable (pandemic, anyone?)
Remember those curveballs I mentioned above? I think we hit the motherload this year with the COVID-19 pandemic, not to mention everything else that’s been thrown in the 2020 dumpster fire. Perhaps I should more accurately say plan for the predictable – anything and everything is possible. Even if it’s $10/month, $50/month, or $1,000/month, always always always have savings set aside for those “oh shit” potholes. I promise you, you will encounter them in your life. I also promise you that it is much easier and much less stressful to tackle them when you have money set aside. Remember, every little bit helps. Future you will agree. (Heck, maybe present you agrees if you’re reading this in 2020.)
3. Prepare for the Future
One of the best things you can do for your future is to start thinking about it now and then putting those thoughts into action. Let’s hit pause for a second though and talk about how difficult this can be. For 20-somethings newly into careers or furthering their education, their future self is most likely not front of mind. When you were 20, were you thinking about saving for a down payment, retirement, kids, becoming chronically ill or injured, or any other expensive life events? I doubt it. (If you were, kudos!)
When I was 14, my dad, a former high school business teacher, gave me the Canadian finance book, “The Wealthy Barber“. As responsible as I was growing up, and even though I read the whole book, I still could not fathom my future. However, one major takeaway solidified in my brain and has stuck with me since then: Always Pay Yourself First. Think of yourself as a set bill payment each month. As soon as you get your paycheque, pay yourself first – whether it be your TFSA, RRSP, or other investment choice. Next, pay your other fixed expenses, such as house bills, car bills, debt repayments, food, etc… Last on your personal payroll is anything you wish to indulge in. WHAT?! Yup. The fun comes last, my friends, and for good reason. Odds are, if you were born in a developed country, you’re going to live a long time. Take care of future you and you’re taking care of all of you. No one wants to be 89 years old, sick, and relying on unreliable sources for basic necessities. Take charge now and thank yourself later.
PS, the earlier you begin, the less you “need” to contribute to future you each month. Compounding interest is your best friend. If you haven’t met good ol’ CI yet, pick up a copy of “The Wealthy Barber” or look it up online. Whatever it takes, learn about your best bud, CI.
4. Take Care of the Present
Make sure not to forget about the present. Taking care of future you (and whomever else that might include) is paramount. But so is living your life. Don’t miss out on today, but please do so responsibly.
What does “enjoying today responsibly” look like? Well, when designing your budget, always take care of fixed expenses first (including your savings!) and then sort the leftovers so that they include activities you enjoy.
What if you don’t have much money leftover once bills are paid? No sweat. This is the time to get creative! There’s this false notion we’ve been fed that we need to spend money (and lots of it) to enjoy ourselves and “live our best lives”. Surprise! That’s a lie. Some of the most enjoyable things in life don’t cost money: spending time with people, enjoying nature, using our imaginations, and the list goes on.
What if the activities you enjoy cost a lot of money? You’ve got 3 options: Shuffle your leftovers to make room in your budget (but not at the expense of necessities like savings, bills, food, etc…), earn more money, or reduce your fixed expenses. The amazing thing to realize here is that you have options, which leads perfectly into the 5th reason why you need to make a budget, now.
5. Nail Down Your Priorities
As I just mentioned, you have 3 choices when it comes to building and living the life you want:
- Shuffle around your budget
- Earn more money
- Reduce fixed expenses
What you choose will depend entirely on your priorities. You’re double-y lucky because if you aren’t currently sure what your priorities are, you definitely will know once you actively decide where to spend your time and money! This is a pen and paper activity. You might surprise yourself, or perhaps you’ll reinforce what you already knew. Either way, your priorities dictate how your budget is divided. It’s YOUR budget, afterall.
Option 1: Shuffle the Budget
For example, let’s say you’ve got some money leftover after paying yourself and your bills. Great! Write down a list of the things you want to do with that money, figure out approximately how much each thing costs, and make your decision. But Tara, you say, I don’t know if I want to see 3 movies this month and only 1 next month. No problemo. This is where the flexibility and customization of budgets has a lot of untapped potential. Perhaps your budget has a general “Entertainment” fund, which can be used for movies or dining out or rock climbing, or whatever else you fancy. This month you might see 5 movies and not go rock climbing. Maybe next month you do both – each time you can stay within your budget.
Option 2: Earn More Money
In situation 2, you’ve maxed out your income after paying your fixed expenses and don’t have any more money to play with. No sweat! There are a million different ways to make some extra money on the side these days. Not sure where to start? Write down a list of your skills that you could use to earn extra income, whether online or in person. Your next step is to follow through and make it happen.
Maybe you don’t want to get a second job. You’ve got two options, assuming you’re employed by a company: ask for a bonus (make sure you’ve put in the work to demonstrate to your boss that it’s of value to them too) or get a new job. The number one way to increase your income is to change jobs. Perhaps this is the time that you re-evaluate the lifestyle you want and start looking for a job that will support it.
Option 3: Reduce Fixed Expenses
Depending on your scenario, this might be the easiest option since it doesn’t require more time or money. All it requires is that you analyze where you’re spending your money, and if you could be spending it smarter. For example, if you’re living in a city with high rent, you might consider moving to a city with more sustainable living costs. Looking for less of a life change but still want to reduce your expenses? Write down a list of every single monthly bill you have. You might be surprised to see how many items are on the list and how much you’re spending in your sleep. Maybe you don’t need to have Netflix and Amazon Prime and Disney+. Have you considered calling your insurance provider and seeing if they can match a rate you found elsewhere? Do you really need that brand new car with its expensive monthly payments, or would a used car for a fraction of the cost work? Or, do you need a car at all? Is public transportation or being a 1-car household an option? The point here is that there’s always a creative solution waiting to be discovered.
6. Structure Provides Opportunities for Spontaneity
Some people love spontaneity. Some people love structure. The most successfully spontaneous people maximize the potential of both. Does it surprise you that spontaneous people plan for spontaneity? Whether with your physical health, your time, or your financial health, having a plan gives yourself the opportunity for endless opportunities.
Still not convinced? The person who moves daily can jump at the chance to climb a mountain. Someone who saves now can purchase (to own) that special item that catches their eye. The person who earns points can jet off to Europe for the weekend on a whim (for pennies). Someone who reads and is curious about the world can participate in a multitude of different conversations. The ambitious food truck chaser whose goal is to eat at every food truck in their city and so makes a schedule of each food truck’s whereabouts will indeed meet their goal. The person who writes down their goals and breaks down the steps to get there, arrives where they envisioned.
Remember, by failing to prepare, you are preparing to fail. Success occurs when Opportunity meets Preparation!⠀
7. Say Goodbye to Debt
Perhaps one of the biggest reasons people start using a budget is to shed the burden of debt. In today’s society, school, house, and credit card debt are fancifully packaged to hide the fact that it’s modern day slavery. In addition to whatever you owe, interest payments, and a reduced number of stable full-time jobs (on a livable salary in affordable cities) are a depressing reality. The cherry on top? We’ve been brainwashed to believe that we need and want all of these things (university degree, big house, new car, etc…) to be happy and successful. I don’t know about you, but I’d rather my money work for me (thank you, CI) than owing it to any person or corporation.
Cue your action plan. Like any tough situation that seems impossible to conquer, ridding yourself of debt requires a well-thought-out plan. Rip off the Band-Aid and take a look at the numbers. How much debt do you owe? How much interest are you paying each month? Next, re-read point number 5. Set your priorities and create a budget according to them. Decide whether that new snowboard or HomeSense find will bring you peace of mind in the coming years. To some, paying off debt does not feel sexy, cool, or fun when there’s a shiny object calling their name or peers (seemingly) living it up on Instagram. But how badass is it to know you’re taking charge of your life and smashing the debt demons? (I can assure you from experience, it’s pretty damn badass!)
If you do anything today, I want you to write down on a piece of paper how much in debt and interest payments you’re paying each month. Then, write down 3-5 things you’d rather be doing with that money. That is your north star, your motivation.
There are times when it will be tough. When you’re down because you’ve said no to that weekend trip with friends, consider the options. First, suggest a more affordable weekend so that you don’t have to miss out. Second, decline with a smile and high five yourself for staying on course. I never said it would be easy, but when you see those numbers fall each month it feels fantastic to know you’re one step closer to freedom.
8. Make Dreams a Reality
Remember when I said Success occurs when Opportunity meets Preparation? Whatever your dreams are, you can make them happen with these three ingredients and a lot of determination and creativity mixed in. Your plan will probably change along the way. That’s totally okay. Just make sure you have one and you will get to where you want.
I can’t emphasize enough how important it is to write your goals down on paper (yes, paper) and make them visible, accessible, and tangible. Re-evaluate regularly. Celebrate the small wins along the way.
Since COVID, I’ve been experimenting with new goal setting strategies. At the beginning of the month, I print out a double-sided calendar. I list business goals on one side and personal goals on the other. Every night I take 2 minutes to write the next day’s To Do list (in the book pictured at the top of this post!). Each time I work towards a goal, I make a mark on the calendar. When I complete a goal, it gets a checkmark. Every month I start fresh, re-evaluating if I want to continue with what I’ve been doing or change any of the goals. I’ve surprised myself with how much I’ve accomplished according to the 2020 goals I set out to achieve. It shouldn’t be surprising though, because I’ve planned to succeed.
TMc’s Budget Tip:
If you’re new to budgeting, it can feel overwhelming. Start simple. The point is to start. Knowledge is power but it can’t be accessed if you refuse to begin. To help with your budgeting journey, I’ve created a basic budgeting template. You can download the template or use as a reference to create your own. High five, rockstar – congrats on getting started!
Bite-Size Budget on the Gram
Visit Travel with TMc on Instagram to get bite-sized budget information, tips, and tricks to put in your pocket. Curious how I’ve afforded 10 years of travel? Check out how to Pay Yourself to Travel and get started making travel an accessible reality instead of an Instagram mirage.
Happy budgeting, friends! 🙂