budgeting as a tool to achieve financial goals

January 29th, 2008

Budgeting as a Tool to Achieve Financial Goals

One of the reasons I am such a fan of budgeting is because of the power it gives me over my money. Instead of being reactive to my bank balance or paychecks, I can be proactive and plan for where I want my money to go and what I want it to accomplish. I know that as long as I stay within my spending plan, my bank balance will never be dangerously low and our income will provide what we need on a monthly basis. And if for some reason, my spending isn’t in line with my budget, I can keep track of what is going on and adjust to make sure that we can handle what life throws at us to the best of our ability.

A lot of the time, the aspect of budgeting that is given all the attention is the limitations on spending. By setting dollar values on specific categories or items, we theoretically limit ourselves on what we can spend and where. But the flip side to that is we can also use budgeting to save our money for specific purchases, and know that our purchase and our ability to afford it is grounded in reality.

For example, at some point in the future, when we are out of debt, I will add a line item to our budget that simply says “House Improvements: $50″. There is not much improving that I can do with $50, but as a recurring “expense”, that money will add up, and in time, I will be able to do a lot with it. No, it won’t be instantaneous, and I can also choose to help it along by snowflaking extra money I earn to it, but bit by bit, it will add up.

Budgeting is also an amazing tool to put that old adage “pay yourself first” into practice. In my current budget is a line item that says “long term saving: $25″. This is how I am building up my long term emergency fund. No, $25 is not a lot (and when we are not in debt, that number will be upped considerably) but it is forming a habit, and I am paying myself faithfully just as I pay my other obligations. Making saving a habit is doing wonders for our financial outlook, as well as how prepared we are for the inevitable emergencies. In fact, we managed to handle several of those minor emergencies without dipping into our emergency funds at all, but by making adjustments in that month’s budget and choosing where not to spend and where to direct our discretionary money.

I’ve written before about my personal method of budgeting, and if you want to see some other software that you can use for budgeting, Lynnae at Being Frugal reviewed a whole host of different programs and methods. You can also have budget meetings with your spouse like glblguy and his wife to make sure you both are on the same page and stay on track. But whatever you choose, whatever you do, I sincerely believe thoughtful and realistic budgeting is one of the keys to financial health. Not that everyone agrees, some personal finance bloggers don’t budget at all ;) , but for me, it works like nothing else I have ever attempted to improve my financial future. And when we can achieve our financial goals, as said so well on Remodeling This Life, we are financially free.

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10 Responses to “Budgeting as a Tool to Achieve Financial Goals”

  1. Great article. Budgeting has been THE key tool to getting our finances back on track. It’s a great way to control your money instead of it controlling you. Thanks for the link!

  2. It looks like you’ve got a great plan in place, and I’m glad it works well for you!

    (by the way, I notice you have 1,000+ subscribers! congrats!!! ;) )

  3. Thanks for the linky! A woot woot for 1000 subscribers!

  4. Thanks for the mention! I’m slowly getting our budget back together. One more pay period, and I should have a good idea of what to expect from month to month, and will better be able to keep a budget.

    Congrats on 1000, too!

  5. Excellent post! Thank you for articulating how freeing a spending plan can be! I feel the same way. Knowing exactly how much I can spend on something takes all the guilt and uncertainty out of the equation. It also makes it clear that when I decide to spend on a particular thing, I have to curtail my spending in another area since my resources are finite.

  6. First, congratulation on reaching 1000 subscribers milestone. And you’re right. I DON’T budget. I have a pay first system when I divert money for all major expenses and savings before the remainder even gets to me. I works well for me, but probably not for everyone.

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