Budgeting is the key to financial security

A global economic slowdown and runaway inflation are forcing many households to rethink their spending choices.

In good times and bad, budgeting is perhaps the most important tool to help you achieve the goals of your personal financial plan. According to a 2020 Forbes Advisor article, “Budgeting often gets a bad rap, but it’s all about spending money on the things that matter most to you.”

It’s hard to achieve your life goals if you don’t know where your money is going and how much you’re spending. Understanding your monthly cash inflows and outflows lets you know when you’re spending too much and need to cut back.

Unfortunately, an Intuit survey of at least 1,500 people found that more than 60% didn’t know how much money they had spent in the previous month.

Why do we avoid making a budget? Most of us don’t like to be held accountable. Responsibility means limits and restrictions. Many people without a budget simply don’t know where to start. Some people are just too proud. I know quite a few people who have significant wealth but spend too much and jeopardize their future financial security.

The telltale sign of the lack of a spending plan? When people are rushing to find out how to pay for a vacation or a new car or a home improvement project. Funds often come from a credit card, home equity, or a 401(k) loan versus a budgeted savings account.

Mindy Crary, a financial coach, writes, “Each individual is the authority over their own spending, but it takes work to maintain awareness and change habits. So the problem is no longer tracking spending, but UNDERSTANDING how your money interacts with your emotions, moods, values, and priorities.

Begin! Take a few months and track your expenses. Get a baseline of your fixed and variable expenses. Check out online budgeting tools, such as Mint, YNAB (You Need A Budget), and Tiller.

If nurtured a little each day, budgeting should gradually become easy. The Forbes article adds, “Think of it as a regular housekeeping task, much like doing your laundry…your laundry is an ongoing responsibility that cannot be avoided, ignored, or forgotten without serious consequences.”

A budget doesn’t have to be perfect — circumstances change, the unexpected happens. A budget gives you true north to return to. “At the end of the day, the way you succeed financially is to spend less than you earn. That’s it. I can’t force anyone to make that choice,” Crary says.

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Paul Fain is a Certified Financial Planner™ and Chairman Emeritus of Asset Planning Corp., a Knoxville-based financial planning and investment management firm. He welcomes comments and column ideas, but cannot offer specific personal financial advice. Email him at [email protected]