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Why You Need A Budget

When I was in college, I never had a budget. I didn’t keep a budget because most of my expenses were paid for in a lump sum at the beginning of the year. My room and board were all integrated into that payment, which made for a pretty simple financial life. The extent of my purchases were at the local bar or at the grocery store when I wanted something a little more interesting than what was available in the fraternity kitchen. I had little income, little expenses, and almost no need for a budget.

That all changed when I started working. Here I was, with a real salary, real expenses, and little by way of advice on how I was supposed to track anything. Fortunately my friend sent along an Excel spreadsheet she used to and that got me on my way. I quickly learned I was spending way too much on food, specifically a mediocre lunch in the cafeteria, and was able to adjust my spending to reflect what I wanted. I learned that having a budget is absolutely crucial.

This isn’t an article on how to budget [3], a topic I’ve written about extensively in the past, but more about why you need to keep and maintain a budget.

This post is part of Bargaineering’s 2010 New Graduate Guide [4] series where I’ll share my insights and offer my financial guidance to the graduate class of 2010. This post is part of day 2, the financial basics.

Budgeting Helps You Save

If you have set any goals for yourself, you’ll recognize the importance of budgeting as a way of tracking your performance. Budgeting, and knowing how much you spend on what each month, will help you plan a savings strategy to hit any financial goals you’ve set for yourself. If you want to buy a new car and need a down payment, a budget lets you determine how much you can put towards that down payment. If you can afford to save $100 a month, you can save $1,000 in ten months, $2,000 in twenty months, etc. If you need a $2,000 down payment, you know that you can reach it in less than two years (slightly less if you put the savings into a high interest savings account [5]).

Without knowing how much you’re spending, and thus how much you don’t spend each month, you can set up a savings plan with a schedule so you know when it’ll end.

What Gets Measured, Gets Improved

If you think you are spending too much, you’re probably right. Fortunately you can fix that simply be keeping track of what you spend your money on. I am almost certain that if you start tracking your spending, you will begin to spend less each month. The reason this happens is due to human nature. If you have no idea how much you’re spending on eating out each month, you will probably be surprised when you start tracking it. You’ll start to eat out less, because you’ll recognize that you’re spending too much and you’ll see it in your budget.

Prosperity Requires Discipline

Finally, the key to success in anything requires a certain amount of discipline. Having and sticking to a budget is that discipline and if you hope to be financially successful in the future, it demands that you have some measure of discipline in your life. If you think financial responsibility is about the number of dollars in your bank account, you only have to think about the bad luck of lottery winners [6]. They weren’t undone because they had a lot of money, they lacked the financial discipline to manage their new found wealth.

Those are just three of the many reasons why you should budget as soon as possible. Why do you budget?

(Photo: spiderpop [7])