What do you do with a budget anyway?
Following a financial spring clean, a fabulous client recently asked me “I’ve done my spending plan/budget, but now what do I do with it?” GREAT question.
What is the point of a budget? Budgets help keep spending under control by bringing greater awareness, intention and limits to our spending in various categories, thus helping ensure our spending is less than the income we bring in each month. But if you’ve already got a comfortable handle on your spending, then why else do you want to have a spending plan or budget?
Budgets and regular reviews of spending and your budget unlock many other areas to explore. For example:
Are there areas in which you may want to dial up or down your spending? Are you aware of how much you’ve spent on Deliveroo over the past few months, or how little you’ve given to the charity you intended to support? Are there any adjustments you’d like to make to align with your financial goals or values?
Are you earning enough to support your non-negotiable and/or aspirational spending? If not, what are your options to earn more?
How much can you save or how much debt you can be paying down each month, potentially based on tweaks to your actual spending?
How much should you have in my emergency fund? Emergency funds are intended to cover 6-12 months of spending if something unexpected happens, so you need to know your minimum spend each month in order to build your savings goals
Do you have financial peace of mind? If you have built that emergency fund, know it will over 6 months of expenses (because you know how much you spend), then you can sleep better knowing you’re covered for a while if something unexpected happens
Can you afford to pursue that big dream? Better understanding of your spending plan enables you to evaluate other big decisions, e.g., whether or not you can afford to buy a new house, dial back hours at your job, make a significant career change, etc.
While developing a budget/spending plan may seem like a boring and tedious task (sound familiar?), it really does form the cornerstone for so many other financial goals and decisions.
Perhaps creating/updating your spending plan should be your next financial goal?