The Real Reason You Should Budget

A quick online search will provide you with a lot of reasons and benefits to create and maintain a budget. For example, you might see references to reaching your financial goals, saving money, or tracking what you’re spending. Those are all great reasons, but they miss the point.

This miss the point because they don’t address the fundamentals. They miss the point because they aren’t enough. They miss the point because they don’t change the way your think.

Budgeting is about making decisions so that you spend your money on purpose.

Let’s break that down…

Making Decisions

We make decisions every day. Most days, those decisions aren’t significant and won’t change your life in any dramatic way. At least, that’s what we think. Does it matter what I wear, what I eat, or the exact following distance behind that car that I’m following?

We care about the big decisions, like where we work, what degree program we pursue, or who we date. Those are certainly important and can have a significant impact on our lives. However, there are more types of decisions than the unimportant and the important. There are small decisions that affect us in a big way over the long-term.

How we choose to spend our money on a given day may not matter too much, but if you add up enough of those days, it can have a big impact on your life. Budgeting helps you make daily decisions that add up over time — that’s why it’s good for achieving goals.

Thinking of budgeting in terms of making decisions means that there is information to gain, analyze, and act upon. That makes it real. It also means that if you’re not, you’re probably making uninformed decisions. That’s the key right there: if you don’t use your budget to make decisions, you’ll just make those decisions without the information gained, which means there’s a good chance you’re making the wrong decisions — more specifically, you’re making poor decisions as a habit, which may add up to results that you would not have decided in the first place.

This is where this Chinese proverb comes in handy:

The best time to plant a tree was 20 years ago; the second best time to plant a tree is now.

Purpose

The second half of the statement above has to do with purpose. Specifically, it’s about spending your money on purpose. I could say “for a purpose,” as well, as that’s what decision-making is all about. It’s about doing something for a reason. We make so many decisions a day that for many of them, we don’t even think about them. Why? Because we’ve already made decisions about them beforehand — in some case, that decision is built into our “muscle memory” (such as when driving a car, playing a piano, etc.).

Certainly, this is where goal setting or saving money come into play. However, we need to be careful that we don’t turn on autopilot. When we think of the goal as the purpose, we can lose track of the why, since we’re only focusing on the how.

For example, you may have a goal to save up enough money to go on a cruise. When things are tight as you’re struggling with your savings goal, don’t forget to ask yourself why you’re going on that cruise. Is it worth it? Are there other ways to accumulate the needed money? You may surprise yourself by thinking this way, as it may end up being motivational: “I’d rather go on a cruise than eat out twice a week for the next year.”

Purpose gives us the direction to where we want to be (or how we want to be). It helps us do the little things that add up to the big things.

What’s Stopping Me?

Given the obvious benefits of budgeting, why don’t we all have one? For one, there are some that fundamentally don’t need them, because they don’t help them make decisions.

One of the big reasons for not budgeting is the cost-benefit analysis that we do. The benefits sound great, but the costs are too high. How high? That’s personal. You have to track your money; you have to create the budget, which means you have to think about where you want to spend your money; you have to apply that budget often (every day, potentially). It may sound easy, but it’s not — at least, not for some people.

It’s similar to losing weight by counting calories. You have to count them to know what you can eat and when you have to stop. It’s an annoyance. It takes away from the experience: “I ruined by dinner by having to count how many calories I could have, down to the last bite.”

There are many articles about controlling your decisions. This one is about understanding that budgeting is about decision-making, first and foremost. Purpose, though, can help you push through those difficult, (sometimes) emotional, and tiring decision-making times.

Conclusion

If your budget doesn’t help you make decisions, then don’t do it. For example, if you’re scraping by and have to save every penny, your decisions are already made: “if it’s not a MUST, it’s a NO.”

Which approach or style of budgeting you use should be based upon how well it will help you make decisions. Just remember that exceeding your budget is just as much of a decision as staying within it.

Just do it on purpose.