My Best Financial Tip – Budgeting is the Key to Financial Success!

In less than two weeks it’s going to be two years since I started blogging. Coincidentally it also happens to be the same time when I started budgeting. Prior to becoming a budgeting geek, I really didn’t care for a budget, they didn’t make sense and sadly I found budgeting a lot of work in which I wasn’t willing to vest much time. Furthermore,  I wasn’t sure how to do it and while I knew I was constantly spending more than I had, I didn’t have the discipline to stop.

I tried to create what I thought was a realistic budget, but it always failed. I finally started taking budgeting seriously when I also decided to get out of nearly $10,000 of debt. Since then, I managed to eliminate $10k worth of debt in a little over a year, and in the same process became a budgeting pro. I can confidently say that if it wasn’t for budgeting, I’d certainly still be swimming in debt today.

So, in spirit of November being the Financial Literacy Month in Canada and myself participating in blog for Financial Literacy, I’d like to share with you four key points on making the most of budgeting.

1. Understand Your Spending Habits

The whole idea behind knowing your spending habits is so you know where you’re starting and more importantly having something to measure it against. There’s no other way to understand your spending habits unless you track your spending. Generally three months is recommended, but even tracking your spending for a whole month will give you a decent picture of your spending ways. By successfully tracking your spending habits, you’ll be able to know how much you spent in a certain category, but more importantly you’ll realize how much you need to budget for that category. The basics of budgeting begins with figuring out how much money you will have for the month, dividing it up based on what you want to do with it, and then tracking where your money actually goes.  A budget provides guidelines and when you are accurately recording your spending habits – whether it’s in a simple spreadsheet, or with a budgeting tool like Mint or Quicken – the numbers as they say don’t lie.

2. You Quit and You’ll Fail

The only downside to budgeting that I could come up with is that it’s a repetitive process. The first time I started budgeting, I wanted to quit after the first month because the process was tedious, limiting and in a way it beat me up knowing that I had money sitting in the bank account, but I could only spend $100 for groceries this month. However, much like anything in life, budgeting takes time. Certainly when you start working out, the results are not instantaneous and neither are the results with budgeting. Part of human nature is that we want instant results, instant gratification and instant everything, but they key is to work smarter and not harder. Budgeting in a way is a game against thyself, and only the smart, patient and determined succeed – the rest just fail by quitting on a potentially life altering journey.

3. Understanding Why Budgets Exist and What They Do

In order to reap the benefits of any exercise it’s important to understand why were doing something. We work out because the health benefits are good, we feel better, look better and train our bodies to defend against unlikely illnesses. Budgeting is not meant to act as a system that works against you and way of stopping you from having fun. So, the sooner you understand the purpose of budgeting and more importantly why you’re budgeting, the more successful you’ll be at money management. Budgeting isn’t about deprivation and instead it’s about empowerment.

4. Goal Setting Trough Budgeting

There are many things I love about budgeting, but my favorite aspect is goal setting. Budgets allow us to set financial milestone goals for the future and they also allow us to create smaller specific goals that are easier to obtain. Working towards financial milestones such as saving for a down payment or eliminating debt are very solid goals. But more specific and more importantly motivating goals are being able to cut your lunch spending down or eliminating coffee on the go or saving $50 off of your monthly grocery budget. You get to see instantaneous results with the smaller goals, which fuel you to continue pushing forward towards the bigger milestones.

Final Thoughts

Learning to take control of your financial situation is what I call empowerment. At the end of the day, nobody cares more about yourself or your money as you do. So, who better to take control of the financial situation than yourself. Budgeting is just another form of exercising, it’s not different than physical exercises, the benefits the may be different, but the principles remain relatively the same. It’s up to you whether you budget or try it for that matter. I certainty can’t force you, nor would I ever want to do such a thing, but certainly I can tell you that budgeting is a powerful tool that can set you free in ways that you’ve never even imagined.

Readers, do you budget? Why do you budget? Did it take you a while to grow accustomed to budgeting?

Thanks for reading, and participating with me  in this year’s Financial Literacy Month 2012!

Eddie

Comments

  1. When I first started budgeting 6 years ago, there were certainly days that I wanted to drop. However, when I first started my budget was simply an updated version of my checking registry. It eventually evolved into a true budget of “telling my money where to go before the month started.”

    These days, I couldn’t imagine living without a budget. It brings a tremendous amount of peace knowing exactly how my month is going to play out before it happens. It’s great to know every bill will be paid on time and how much money will be left at the end of each pay period. Frankly, I can’t believe I didn’t budget for such a long period of time! What was I thinking??
    Jason @ WorkSaveLive recently posted..Recipe: Bacon and Egg MuffinsMy Profile

  2. I had to start budgeting in order to get out of the $50,000 worth of credit card debt that I dug for myself. Without a budget, I would have never been able to pay it all off. My biggest budget tip is to pay yourself first. No matter what I did, I always made sure that my emergency fund had money and that my retirement accounts were still being funded. I didn’t want to be short after I paid my debts. Other than that, stick to it and never look back.
    Grayson @ Debt RoundUp recently posted..A Simple Black Friday Shopping TipMy Profile

  3. I remember starting to budget about 8 years ago and it was so foreign to me. I remember thinking why on earth would someone want to do this. Lol! Now I love to budget. I would consider myself a budgeting geek as well and love looking at where my money is going and how I can utilize it better.

    When you’re first starting out, budgeting can be difficult. I found that it requires discipline and being willing to try different things until you hit your groove.
    John S @ Frugal Rules recently posted..Are Large Companies Immune to the Fiscal Cliff?My Profile

  4. Hey Eddie, found you via the Life Insurance Canada list of bloggers. You and Mr. CBB (Canadian Budget Binder) share the belief in the importance of budgeting. The hubs and I have never really created a budget, but track our spending pretty religiously
    Mandy @MoneyMasterMom recently posted..Be Bad for the EconomyMy Profile

    • Hi Mandy!
      Thanks for stopping by.
      Yes, me and MR do share a passion for budgeting – just look how creative he gets with his weekly grocery budget.
      Tracking your spending is only one part, try creating a budget – and see the money pile up. It will be hard in the beginning, but worthwhile in the end.

  5. Budgeting is big for us. If you do not plan, you cannot check how you are doing.

    It is how people are able to get ahead.
    Steve Zussino recently posted..Metro Quebec – Save $2.00 on Assorted European Irresistables Cookies – Printable Coupon (Exp. Nov.21, 2012)My Profile

  6. “Learning to take control of your financial situation is what I call empowerment.”

    Indeed.

    Learning about your financial situation, where your money is going and most importantly, where it’s not going, is critical to financial success.

    Well done.

    Mark
    My Own Advisor recently posted..My Best Financial TipMy Profile

  7. Eddie, absolutely!

    You don’t need to have the most complicated or rigerous budget, but you do need to know what’s coming in and what is going out. ;) If you don’t even know that much, then how can you plan anything?

    Businesses place importance on cash-flow, and so should the rest of us! Without analyzing your cash-flow, you really have no way to know where you are, or where you are heading.

    I think most people don’t want to budget because of their debt, and sweep it under the carpet. Yet budegting could really be a big help for these people. It could even be empowering for them, once they take steps to get started.

    Cheers
    The Dividend Ninja recently posted..Why You Should Start Investing Now!My Profile

  8. These are great financial tips! Right now, I save money first and budget the rest for our expenses. It’ quite challenging, but I’m determine to add some money in the bank.