Budgeting is Underrated

Feb 16, 2015 by

          The word budget has a negative connotation. A lot of people hate it. It’s often associated with couponing, second-hand clothing, and boycotting Starbucks. The financial services industry really needs to retire the morning latte example. Coffee drinkers are desensitized to it, and people who don’t drink coffee don’t care, i.e. me. How many times have you heard that you could save hundreds per year if you just cut out your morning latte? Actually, it’s more like a grand, maybe higher, depending on how much your morning latte costs. The smallest latte at my nearest Starbucks – because I just called to ask (yes, for real) – costs $3.62, including tax. Multiply that by an assumed average of 5 days per week for 52 weeks per year, and that’s $941.20 – or 10 round-trip bus tickets from Toronto to New York or a weekend in Vegas. Undeniably, those lattes add up to a lot of money. But what if you really enjoy your morning lattes? What if drinking that daily latte is more important to you than New York or Vegas? Good news: You don’t have to ditch them. You can choose to prioritize them instead, because that’s what budgeting is all about: choice.

          Budgeting should not feel restrictive. It should feel empowering. I have to credit my Financial Chick for that one. She used the word empowering to describe budgets during her personal finance seminar that I took my little sister to at the end of January. I thought it was the perfect word to summarize why I love budgeting. Budgeting gives you the power to decide how you’re going to spend your money based on what’s important to you. I rarely refer to my financial plan as a budget, but in essence, that’s exactly what it is: a breakdown of all expenses I have to pay and how I’ve chosen to allocate the rest of my money across my priorities. Note my word choice: how I’ve chosen to allocate. Like I said, budgets are all about choice. They shouldn’t make you feel confined; you choose your financial priorities. For example, in addition to things like retirement savings and student debt repayment, my budget (financial plan) also factors in travel, because travel is important to me. If shoes are important to you, factor in shoes. If Starbucks is important to you, you do you, and you factor in those morning lattes, goddamnit!

          Now, I’m not saying you can have whatever you want. A budget is intended to make certain that you live within your means while also saving money and avoiding debt (or avoiding more debt, if you’re already in it, my fellow university grads). Money is finite. You have a set amount to work with. If you want travel or shoes or morning lattes, you will have them at the cost of something else. That’s not your budget’s fault. That’s life. In life, we have to make tradeoffs. A budget helps ensure that you are making the right trades. It guides you in distinguishing between what you consider important and unimportant, so you know what to forgo in favour of what you want more. If travel is more important to you than expensive four-course meals, sticking to a budget prevents you from going to pricey restaurants only to later realize that you don’t have enough money for the flight you’ve been dreaming of. With a budget that prioritizes travel, you’ll have already set aside the portion of your income that needs to go toward your flight in order to accomplish your goal. You will know for sure whether or not you can afford a lavish meal without compromising your plane ticket, because you’ll know how much money you have left to spend on decadent foods once that plane ticket has been accounted for.

          That being said, budgeting does not mean pinching pennies all the way to your priorities. Another important part of budgeting is ensuring you have enough money to spend in your day-to-day life, so you don’t resent your savings. This is the biggest financial lesson I’ve had to learn. I’ve always loved budgeting. My budget makes me feel in control of my finances and confident that I can achieve my financial goals because I know I’m putting enough money toward them. But to me, budgeting used to mean saving, not spending. I’ve since learned that a budget is a balance of both. It is a means to enjoying your present while simultaneously enabling the future you want.

Happiness Tip: Budgets are empowering.

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