If you’ve never created a budget before, you’ve likely found yourself making money mishaps. Tracking your spending each month would inevitably become a burden, and you’re technically keeping up with your bills anyway. So, what’s the point?
Failing to have a plan for your spending is leaving you in a precarious position. Without a budget, it’s too easy to waste money, rack up debt, and wind up in a suboptimal financial position.
Which money mishaps can a budget help you avoid? Here are the main financial problems you can skip over if you start budgeting your money every month.
#1: Living Beyond Your Means
One of the first money mishaps budgeting corrects is living beyond one’s means. This fact has been proven over and over again through formal studies and anecdotes. A 2019 Bankrate study showed that nearly one-third of U.S. adults don’t have any emergency savings and that one in four have a “rainy day fund” but not enough savings to cover three months’ worth of living expenses.
Figures like these are the result of various levels of poverty, but even people with excellent incomes also struggle. Nielson data from the last decade shows that one in every four families making $150,000+ per year lives paycheck-to-paycheck. For families with incomes between $50,000 and $100,000, on the other hand, that figure increases to one in three.
How does budgeting force people to correct the common problem of overspending? With a spending plan, you’re forced to look at your income and how it compares to your regular monthly expenses. As you track your spending throughout the month, areas you’re spending too much money in will also become crystal clear.
A budget helps you set limits on your spending in discretionary categories such as groceries, dining out, and entertainment. These limits are created based on the amount of money you actually have to budget with. As a result, you become more cognizant of how much you actually earn and what you can afford.
#2: Racking Up Debt Over Time
Another area where budgeting helps tremendously is in debt avoidance and repayment. Budgeting requires you to keep track of your debts and create a plan to pay them each month. It also helps that you’re setting limits on spending that make it easier to avoid racking up credit card debt.
A responsible budget also leaves room for miscellaneous purchases as well as savings each month.
With income designated to savings each month, racking up debt becomes unfathomable. Of course, unless you face a financial emergency or throw your budget out the window.
#3: Neglecting to Build Up Emergency Funds
Another big money mishap many people make involves failing to have any sort of emergency fund. Unfortunately, not having any savings set aside can lead to debt and financial hardship if you get laid off from your job, face a loss in income, or encounter a crisis or medical condition that leaves you with exorbitant bills or unable to work.
One key pillar of a strong budget involves saving money each month until your account is adequately funded.
How much do you need? We suggest three to six months of living expenses set aside for “what ifs.” Although any amount is better than nothing. Either way, a budget will help you figure out how much you can save each month. Then consider allocating that money to a high-yield savings account until you reach your savings goal.
#4: Running Out of Cash Until Payday
When you’re not using a budget, it’s too easy to spend whatever you want until the next payday comes around. Two weeks isn’t that long to wait until you have the cash to pay bills and cover living expenses again.
Where this type of paycheck-to-paycheck lifestyle is common, it’s also problematic. Not having a spending plan will leave you where careless financial decisions are too easy to make.
With a written monthly budget, you learn to drop the inclination toward paycheck-to-paycheck thinking and learn to think in terms of your monthly income and spending. You’ll also plan your regular monthly liabilities (like rent or mortgage payments, car payments, utilities, and insurance) and ongoing recurring expenses like food and entertainment for the month, versus simply spending your paycheck until the money runs out.
The result? You find yourself becoming more intentional with your spending and caring more about where your money goes.
#5: Paying for Stuff that Doesn’t Matter
Another problem is not really knowing where your money is going in the first place. For example, subscriptions are hugely popular and you could easily have all monthly recurring expenses you don’t even know about.
With a budget in place, however, you’ll be forced to take a look at all your spending in black and white every month. With this kind of introspection, you’ll be able to quickly identify regular purchases you make that don’t bring value to your life, as well as those you didn’t even realize you were making.
Without a budget, you’re destined to bleed money every month for stuff you don’t even care about.
#6: Not Making Any Progress Toward Your Financial Goals
Finally, don’t forget about one of the most severe consequences not having a budget can bring about. Not working toward financial goals that can improve your life now and later on.
Without a budget, you may not be working toward building up an emergency fund each month, or toward repayment of high-interest credit card debt and other regular expenses that chip away at your income. You may also be saving a lot less than you have the potential to save for retirement or future college tuition, and instead spending that money on dining out and other miscellaneous purchases that seem important but don’t add value to your life.
Living without a budget may not mean the end of the world, but it usually does mean you’re simply getting by each month but not necessarily building wealth. Over time, the money mishaps you make each month without a budget will add up and compound, most likely preventing you from living a carefree, debt-free life, and even from retiring when you want and on your own terms.
Is Qube the Budgeting Solution You’ve Been Looking For?
If you’re ready to stop letting money mishaps control your financial future, it’s time to get serious about your finances and start making every dollar you earn count. You can start budgeting with nothing more than a pen and paper if you prefer to do things the old-fashioned way, but modern technology and the internet have made it easier than ever to access budgeting tools that can help.
With Qube Money, for example, you can create a monthly budget, set spending limits that help you stay on track, and access your budget using your mobile device. This mobile banking app goes a step further and splits your money into separate digital accounts, helping create purpose for every dollar.
With Qube Money on your side, you could finally start working toward your goals.
The bottom line: A budget can help you avoid an array of money mishaps that can prevent you from reaching your financial goals and leave you struggling and in debt.
Some people think tracking purchases and using a budget is too big of a hassle, but they’re wrong. The real hassle is working your entire life and having nothing to show for it.