There are two loves in my life -- my "boo" and my budget.
OK, maybe my husband comes first, but I'm not kidding about my love affair with our budget. It's the road map to our economic soundness.
But our budget doesn't just encompass a list of our household expenses. It's more like a manifesto. The budget my husband and I have created for our family is a statement of what we want our money to do for us -- and others.
Recently, during one of my online discussions, a reader asked about the relevance of a budget.
"My spouse and I make a lot of money," the reader wrote. "Our only debt is our mortgage. We have about nine months of living expenses in an emergency fund and a generous life-happens fund. But we don't have a budget. We're not extravagant. What do you think?"
Here's what I think. Can you prosper without a budget? Sure you can, if you have more than you need. However, even if your income is substantial, it's still important that you keep track of not just what you spend on necessities, but also of whether your money is being spent the way you truly want.
I'll give you five reasons why you need a spending plan.
1. It's not just about your income and expenses. I've met and counseled countless individuals and couples with six-figure salaries who lost track of their spending because they had so much money coming into their household that they didn't think a budget mattered. They ended up spending themselves into a hot mess. Even with good income, they lived beyond their means by overusing credit cards.
2. The numbers don't lie. When you aren't closely watching, it's very possible you're overspending and don't know it. Small expenditures often don't register. In your mind, they also don't add up to big money, because you aren't keeping track of the totality of your spending in a particular category.
3. It's a stopgap tool. How do you know if you're spending more than you want in any one category if you don't have a figure to measure it against? Set a limit in your budget for those expenses and then double-check it against your monthly bank statement.
4. It puts short-term and long-term goals in perspective. The reader wrote: "When we have some extra money sitting in our bank account, we put it in the kids' college funds or send it to the mortgage." This might be the best use of the money, but it might not.
5. You can have the things you want. A budget doesn't only have to be about setting limits on what you can't do or have. Turn that thinking around. It can also show you what you can do. So, in the case of this couple, they probably could afford to save for a summer vacation to France.
Budgeting isn't just numbers on a paper. It's a way to drive your spending in a direction that helps you live the financial values I hope you've set for yourself.
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