This three part series of articles was originally written by Christa Hudak in November of 2017.
Budgeting relieves financial stress. A big source of stress is uncertainty. Simply not knowing where your money goes or what you will be able to afford is stressful. If you run a budget and track your expenses you know what is going on with your money and you have a good sense of what you can and cannot afford. This in turn will enable you to make appropriate choices in how you commit your money.
When was the last time you applied for a home loan? If you have at any point and you kept a budget at that time you were probably shocked at what the bank was willing to lend you. However, if you did not have a handle on your finances you may have said something like, “great, I didn’t know I could afford so much!” But what you can afford and what you qualify for are two very different questions.
Let me make one thing clear: It is not the bank’s job to determine how much you can reasonably afford in your situation. The bank’s job is to give you as many options as possible (as their customer) and not expose themselves to too much risk. Only you can make the determination of how much is reasonable for you to afford given your specific situation and priorities.
This is true of a lot more than mortgages. We live in a society bursting with payment plans, leases and longer and longer-term car loans. It is not wrong to utilize these tools in the appropriate circumstances, but you need to be able to evaluate them appropriately. Saying to yourself, I could probably scrounge together another $137 per month while you sign on the dotted line for your new car stereo is not really evaluating your budget. Making financial decisions in this manner will lead you down a path stress, worry and often financial hardship.
However, if you have a written budget in which you track your expenses you would easily be able to determine if there is surplus income or an area you are willing and able to cut back in so that you may buy the car stereo. If you determine that it is feasible and valuable enough you can move forward with the purchase stress free.
Budgeting shows me my priorities. You show me how you spend your money and I will tell you what your priorities are. I don’t mean your theoretical, sky high priorities, but your priorities in reality. Your functional priorities are the things on which you spend your time, energy and money. Looking at your budget can be a great opportunity to ensure that your functional and espoused priorities align as you want.
It is probably safe to say that we all prioritize a safe and stable home for ourselves and our family, which is why a large portion of most budgets are housing expenses. On the flip side, it is not accurate to say you value helping those less fortunate than yourself if you never expend any of your time or financial resources doing so.
Not only does budgeting help you see your functional priorities, it can be a tool to align your priorities with what you want them to be. If you recognize that you want to do something that you have not been, creating a place for it in your budget can make a big difference. For example, if you want to work on developing your relationships with your friends you can create a specific category for doing activities with, hosting and eating out with other people. Not only does the category give you the permission to do these things, if you are part way through the month and realize you haven’t spent that money you know it is time to pick up the phone and invest in your relationships.
Remember, your time and money are both limited resources, which means saying yes to one thing means saying no to something else. Take the time to consider if you are saying yes to the right things and you are comfortable with what you are saying no to as a result. Budgeting is not just about making sure that you spend less than you bring in, it is an opportunity to evaluate that your money is going to the things you want it to and accomplishing your goals.