Why Budgeting Is Not A Waste Of Time
The key to building a strong financial plan for the future is to understand how much money you’re currently spending and saving. Budgeting and tracking your expenses can give you the knowledge and control you need to get through the various financial changes in your life.
We started budgeting and tracking our spending a few years ago to help figure out if we could afford to live on one income after our oldest daughter was born.
Related: How To Make A Better Personal Budget
We cut out a lot of excess spending from our budget just by taking a close look at our expenses for three or four months. Little things like coffee, magazines, snacks and the odd take-out meal can really add up when you don’t pay attention.
Budgeting Made Easy
I use a spreadsheet to track what money is coming in (salary, interest, government benefits) and what’s going out (mortgage, debt payments, utilities).
My personal budgeting spreadsheet has 75 spending categories, which I’ve customized for our own situation. Here’s a look at our home expenses:
| Home Expenses | Monthly ($) | Annual ($) |
| Mortgage/Rent | 2,025 | 24,300 |
| Electricity/Gas | 175 | 2,100 |
| Water/Sewer/Trash | 75 | 900 |
| Phone | 65 | 780 |
| Cable/Satellite | 80 | 960 |
| Internet | 35 | 420 |
| Total | 2,455 | 29,460 |
Fill in all your monthly expenses in one column and your annual expenses in another column. Add up your expenses in both columns and subtract them from total net income on both a monthly and yearly basis. The result is your cash flow surplus or deficit.
Some people think budgeting and tracking your cash flow is a waste of time; that once you pay yourself first it doesn’t matter how you spend the rest of your money. I think that’s a mistake, especially if you’ve never tried it and seen the results for yourself.
David Chilton agrees when he wrote in The Wealthy Barber Returns that not tracking our spending is leading to over-consumption and we’re now carrying debt along side of our savings.
To get any meaningful results from the budgeting process you’ll need to track your cash flow for at least a year. Once we had 12 months of data to look back on, we were able to put together a solid plan for the future by forecasting our income and expenses 12 months in advance.
It takes time to uncover spending patterns and to understand the complete picture of your income and expenses over the course of a year.
Even though I have a good handle on our cash flow, I recognize that there’s always a new financial challenge on the horizon that may require changes to our budget.
Budgeting can help you prepare for major events like buying a home, having a baby or making a career change.
Do you think budgeting is beneficial, or is it a waste of time?
Budgeting is absolutely beneficial. I think after a person is out of debt and IF they’ve developed strong saving habits, it’s OK to loosen up on budgeting. I manage to save over 50% of my net and I’m not tracking everything. I think, however, that because my cost structure is going to change in the New Year (home ownership), I should get a copy of Quicken and make tracking our household expenses a New Year’s resolution.
@Joe – Our cost structure has changed every year for the past 3-4 years, which is why I’ve been so diligent in tracking our expenses. Actually, I do a much more complex forecast of income and expenses – projected about 18 months out.
But after switching careers, going from two incomes to single income living, having two kids, and building a house, change is all I know 🙂
I think one positive many people miss about budgeting is the relational bond it can create between a couple. Nothing will move a relationship forward faster than having to agree on a budget. It won’t be easy at the start, but the long term benefits to the relationship are extraordinary.
Good point, Brian. While I look after the details of keeping our budget on track, my wife and I talk regularly about our finances and we agreed upon our savings goals and big ticket purchases in advance.
Simply tracking your spending can go a long way. Thanks to credit cards and Quicken that doesn’t take much work. From there you can see if it’s ok or if you need to do anything, and work out a few specific plans instead of trying to track a lot of categories.
People are generally bad with fixed goals, while changing habits can be more effective. So it’s easier to say that you’ll only eat out once per week rather than saying you’ll only spend $250/month. Or you can reduce your TV package to get predictable savings.
That’s what works for us. It seems that the people who need a budget the most resist it the most!
Although Mrs.CBB and I have saved our money over the years it wasn’t until 2011 where we buckled down with the budget. It was the BEST thing we have done for our finances. It not only gives us information to help us move forward for the next year to set goals it has helped us to save enough money to have zero debt including the mortgage for 2013. It doesn’t get any better than that when you can see that a budget helps to pay down debt and save for the future. Great post Mr.CBB
Budgeting is a lot like going on a diet. It isn’t until you start tracking your spending/food consumption that you become motivated to improve. For example, once you realize you’re spending $500 a year on premium ice cream I’m sure you’ll want to cut back. Tracking your expenses is a lot easier if you’re single – being on the same page financially as a couple and getting together once a month to complete your expense spreadsheet can do wonders for your relationship (and pocket book).
I have to say budgeting literally saved me from spiraling into bankruptcy. Although I didn’t have collectors knocking at my door they were only held at bay by using the same dollars to pay all my bills i.e. I was borrowing from Peter to pay Paul. Seriously bad financial circle. When I put the numbers together I went back 6 months to find out what I was actually doing. Not being able to account for all the cash I was spending was red flag #1. I put a plan together to watch for the flags and I addressed each as they came up. Put a plan in place to stop spending on food that wound up in the garbage because I couldn’t eat all of it by myself. Budgeting is now a very fun part of my week!