One of the most important things you can do for your financial health is to create a budget. With a budget, you can ensure that you are saving properly and not spending more than is feasible given your income.
Though we have access to several apps and online tools that can help with budgeting, many of us spend without keeping close track of where our money goes. Some people choose not to budget due to the many myths around this process. For instance, they may see making a budget as a complex and time-consuming endeavor. However, many of the most pervasive myths about budgeting are simply not valid. Read on to learn a little more and help dispel these rumors.
Myth #1: Budgeting requires a strong math foundation.
Some people think you need to be an accountant to set up a budget. Accountants deal with very complex figures and processes. A household budget, on the other hand, requires only addition and subtraction. Moreover, some programs can help you with this process so you don’t have to do any math at all.
Start by listing all the money that comes into your household and add up those numbers. Then, list all your expenses and add those numbers together to see how much room you have in between. To do this, subtract the total expenses from the total income. If this number is negative, you need to cut down on your expenses because you are living in the red. If this number is positive, that is the amount you have left for savings and discretionary spending.
Myth #2: Budgeting means cutting out all fun.
Living on a budget is sometimes equated to living on the bare essentials. However, budgeting means figuring out the amount you can spend so that you do not run out of money. That way, you never need to stress about paying bills.
You can always build fun into your budget provided that your expenses are not greater than your income. You may even find that you have more fun once you create a budget, as you will know exactly how much you can spend on entertainment. In addition, you can always build some spontaneity into the budget by creating a category like “fun money” that you can use for anything. Really, budgeting is about prioritization rather than cutting out fun altogether.
Myth #3: Budgeting is a very complicated process.
In reality, budgeting is a very simple process that involves accounting for the money coming into your life and the bills that you need to pay each month. As mentioned, apps can help you manage a budget, or you can use Excel. You can even use just paper and pencil.
Of course, budgets can grow more complicated when you start to account for credit card balances and other debts, but these details are not essential for an initial budget; you can add them as you feel more comfortable. If you feel like your budget is too complicated, simplify it so that the details do not overwhelm you.
Myth #4: Budgeting is something you do once.
A common misconception about budgeting is that you do it one time and then it’s done forever. However, once you set up a budget, you need to revisit it regularly. Whenever your financial situation changes (for example, if you get a raise or buy a new vehicle), you need to revise your budget. Regardless, you should revise your budget at regular intervals.
Think about whether you are staying within your budget and adjust as necessary. Look at your actual spending compared to how much you have budgeted for a given category. Rather than break the budget constantly, figure out how to reconfigure it in a way that keeps you on track toward your goals. Some people do this monthly, while others wait a few months before they dive into the issue.
Myth #5: Budgeting eats away too much time.
Everyone is busy these days, and no one wants to set aside time for budgeting. Though at first you will need to dedicate some time to set up your initial budget, it will not take as much time as you think, and certainly nothing like a whole day.
You will need to think about how you spend your money and revisit credit card statements and other bills. If you want, you can even break the process up into multiple sessions. Once your budget is complete, you will need to revise it from time to time. This process should not take more than half an hour. You can cut down on the time investment even more by using apps that track your spending. These apps can quickly tell you exactly how much you spend and on what.