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The following is a post from Jackie at The Debt Myth. Check out her sweet blog and debt iPhone App after reading how to rock your financial life. Thanks for sharing, Jackie, as I finish up the last tax returns this week!
Did you know that debt and the failure to thrive financially are often caused by just two things? They’re things that can be fixed with a little bit of persistence and time.
So what are they? They are:
- the lack of a plan for your money; and…
- not having an adequate emergency fund
Luckily, creating a realistic budget that takes your actual life into account — and then sticking with it over time to fine-tune it — can put you on the path to an awesome financial life.
How people become money superstars
See, here’s the secret. People who have it all together with money weren’t born that way. Instead, they take the time to learn what they need to know (or to seek out experts to help them understand) and then they actually DO what it takes. They don’t go off half-cocked, or jump willy nilly from one sparkly thing to another.
You wouldn’t head off on a trip tomorrow with no idea of how to get there, what to bring, or what the weather might be like, would you? So why would it be fine to spend your hard-earned money without any planning? It wouldn’t, if you want to live an awesome financial life.
Money superstars give their money the attention it deserves by budgeting for the things they want and need — and that includes making sure they have an adequate emergency fund.
Budgets say I love you
Budgets are a great way to love yourself, your family, and your families future. They say that you care enough to make sure you get the things you need, and some of the things you want. They ensure that you’re not throwing away money on things you won’t even remember a month from now, let along a year from now.
And they make sure you’ve got money handy in times of stress — always an excellent thing.
Critical things to include in your budget
Like Jacob says in his Budgeting Basics series, you want to base your budget on your priorities, which means laying out the things that are important to you and then making sure those babies are in your budget. Me, I love to eat out and travel, so you can bet we have a monthly amount allocated to those things.
Of course, you’ve also got to make sure your expenses are covered. As you’re doing that, keep in mind that credit cards are not an expense. They’re a method of payment. Like, you know, money.
If you’re debt free (awesome!), then just add the things you’re actually spending money on each month into your budget and prioritize them in order of importance. If you’re carrying a balance on credit cards, add an additional line item for credit card debt to your budget and focus on getting it paid off.
You also want to be sure you’re filling up your savings buckets for irregular expenses. Things like car tags, taxes (especially if you’re self-employed or have a side job), Christmas, etc. And that’s where the real magic comes in, because you also need to budget for your emergency fund. If you don’t have an emergency fund at all yet, make getting at least a small one a huge priority. If you’ve already got one, make sure it’s enough to last you a good long while if you were to lose your job or become temporarily disabled.
Why an emergency fund matters
The true power of budgeting is that allows you to plan for the unexpected. (Well, that and insurance.) No one wants to lose their job, have their house damaged by a fire or a hurricane, have their transmission keel over on their car, or whatever. But those kinds of things happen. Even if you were born under a lucky star and lead a charmed life, you still live with mechanical things and appliances. Those things all die eventually. Make sure you’ve got enough money to take care of life’s little (and big) hits, and you’ll turn an emergency into an inconvenience.
And that’s exactly how budgeting puts you on the path to an awesome financial life. When you’ve got money in your hot little hands, life is just a whole lot easier. Budgeting makes that happen. So go make it happen for you.
Jackie Beck, author of The Debt Myth, has been writing about personal finance and goals since 2006. Her Pay Off Debt iPhone app has helped tens of thousands of people use the debt snowball method to pay off debt.
13 thoughts on “The Surprising Way to have an Awesome Financial Life”
Budgeting isn’t always fun but it’s usually necessary. I definitely think tracking your spending is more important than budgeting, though. You can budget all you want but if you don’t know where your money is going or whether you’re meeting your budget, it doesn’t do much good.
Tracking your spending goes hand in hand with budgeting 🙂
Great post Jake! I always think it is funny when I hear people say that budgets are too restrictive. The truth is they free you financially!
The definitely free you up. That’s exactly how you GET the things you want…
Great post! Creating (and sticking to) s budget was the best thing that we have ever done for ourselves!
Glad you’ve had a similar experience 🙂
To be honest, budgeting was a bit rough to get started on, but that good feeling of having money enough to do everything (and more left over) at the end of the month is pretty good for positive reinforcement!
It can be hard to get started on, but once you get in the groove it really helps.
My biggest problem with budgeting was that I wanted to have a “perfect budget”. You know, this kind of budget that started working out first time when set up. It’s so easy to give up when you see that the first budget didn’t work out… and the second was a disaster… the third one was so bad that it’s better not to mention about it… But now I’m changing my attitude. I think that I’m a winner because I try, even when sometimes it doesn’t work the way I would like it to. As you said, budgets says “I love you” but sometimes it tough love 🙂
I think feeling like it’s got to be “perfect” or you’re not doing it right is really common. But as I told myself over and over again, there’s no such thing as a perfect month. Budgets evolve over time 🙂
Hi Jacob, These are very good tips. One of the most important points in your article is the point about emergency finances. Budgeting is necessary so you can come up with an awesome financial life.
Our EF has definitely been a blessing! Turns those headaches into minor inconveniences. 🙂