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Do You Really Need a Strict Budget?

Having a budget might not sound like a lot of fun, but the reality is that most people need one. Without a budget, it is difficult to tell where your money is going, and it is hard to make sure that you have enough money left over after paying bills and covering your expenses to save for retirement or to save for a rainy day.

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With a budget, you can create a plan for your money that allows you to grow your net worth and that allows you to achieve both long and short-term financial goals.  As noted financial expert Dave Ramsey says: “When you budget, you're spending on paper, on purpose, before the month begins.”   

Benefits of a Strict Budget

When you create a budget, the first and most primary goal is to make sure that you are not spending more than you bring in each month. If you spend more than you make, you will always continue to go deeper and deeper into debt.  

Your budget should list the different categories of spending that you have each month. There should be a category for things like rent, food, gas, transportation, utilities, kids school activities, clothing, and all of the other stuff that you need to spend your money on over the course of the month. Some of these categories will be fixed expenses while others will be things you can control.  When you set your budget, you can create limits for the discretionary spending to make sure you aren’t spending more than you are comfortable with on any one category.

You should also factor savings into your budget, making sure that you have enough cash to put aside for retirement, for an emergency fund and for unexpected expenses.

While the budget should add up and you should be strict about sticking to it, the budget also shouldn’t deprive you of fun. Make sure to factor in spending on entertainment and things you enjoy.

Alternatives to a Strict Budget

While having a strict budget is a positive thing and a good financial step towards making smarter and better money choices, there are always going to be some people that just cannot or will not live by a budget.

If this is you, you should consider alternatives to make sure that you don’t end up without the money you need to accomplish your goals. One of the best alternatives to a budget is a cash-based lifestyle and a commitment to pay yourself first. If you don’t have credit cards and you don’t charge things you cannot afford but you only pay cash for your purchases and expenses, you cannot get yourself deep into debt.  This means you won’t need a budget, necessarily, because you will be restricted to spending the money that you actually have available to you.

Of course, restricting yourself to spending only what you earn and not cash is only going to allow you to accomplish your goals if you don’t spend every single dollar you bring in every month. Therefore, if you are going to pursue this alternative to a budget, you should pay yourself first.

As Investopedia explains, Pay Yourself First is a commonly used phrase that refers to making contributions to your savings from each paycheck you receive, before you do anything else. In other words, when money comes into your house, the very first thing you should do with it is set some aside. You should pay yourself first by putting aside money into a retirement fund that you are going to use when you get older (this fund might be in a 401K or an IRA to get tax benefits and to save with pre-tax dollars). 

You should also pay yourself first by setting aside money into a savings account. It is a good idea to have an emergency fund of at least three to six months of living expenses, and to have money set aside for goals like a home purchase.  You should also have money set aside for things like car repairs, new car purchases, home repairs and other unexpected and occasional expenses as well.

If you operate by these principles, put aside money and spend cash, you can still do quite well financially even without having a budget.   If you do run into trouble and you need to borrow, you can make use of a service like TitleMax to get you the cash you need quickly. Especially if you have been diligent in paying your cars off.

Budget Now, Spend Freely Later

Bottom line here is that the more you budget now, the more financial freedom you will experience later. In a day and age where we want instant gratification, too many people are spending wildly now and suffering for it in the future. Don’t be that person! 

Joey Alec is a financial advisor’s assistant. He helps the young and old alike prepare for successful financial futures. As he journey’s towards becoming a full time advisor, he shares what he’s learning with people like you through posts like these. 

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