eSchool - Personal Finance, May 2nd, 2007
If you mention the word "budget" to most people, chances are they'll make a face. But before jumping to negative conclusions, let's examine three popular myths and assumptions about budgeting.
Only People Who Are in Debt Need to Budget: False
Many people have a false perception that budgets are only for people who are in real financial trouble, such as people in tremendous debt or people who spend more than they make. Certainly, in those cases, a budget overhaul is necessary. The reality is that everyone can benefit from the budgeting process.
Just as successful companies maintain budgets, so should individuals. Successful companies budget because it works, not because they are in financial trouble or are spending beyond their means.
The good news is that if you are in debt or have poor spending habits, a budget can assist you in understanding and changing your current spending habits. Budgeting can also provide you with more money control and organization.
Budgeting Means You Have to Suffer: False
What most people don't realize is that they already have a budget -- one that is based on being reactive to circumstances, rather than being proactive.
Being reactive to spending your money almost always ends up producing a negative effect on the amount of money you have left. This puts undue pressure on you and often results in increased anxiety. When you don't have a planned budget to guide you, anxiety arises from the fear of wondering when, not if, you will run out of money.
For some people, the anxiety and stress over their money woes results in depression. Starting the budgeting process now can actually reduce your suffering.
Think of that drawer or closet you stuff or throw things into when you don't know where to put them or don't have time to put them away properly. After a while, you're afraid to even open the door to the closet. Without a budget, your spending habits are very similar. You see something, you buy it, and then the money is gone.
Instead, close your eyes and change the picture of the stuffed drawer or closet. The new picture has all of the items lying neatly arranged on the floor of the room. This arrangement allows you to see all of the contents. Now you can create a plan by looking inside the empty closet and determining the best way to organize the items. You can determine which ones you need to use often and put those in the front for easy access. You may even choose to install new shelving to maximize storage.
Your time and effort in planning and organizing have now produced more storage space than before, and still allowed you to keep all of the items you started with. As time goes on, you may notice that you really don't use all of the items, and can easily get rid of them. Now, you have even more space available in the closet.
Creating and monitoring your own personal budget can produce the same outcome with your money and spending habits. The actual work of organizing your finances can result in finding extra money for you! During the organization or cleanup process, you can find expenses you are able to eliminate. You can even see options of restructuring debt that will decrease interest expenses and allow the debt to be paid off sooner. In the long run, these choices will result in more money for you.
Budgeting Means You Have to Spend Hours Doing Paperwork: False
Are you fearful that this budgeting process will take huge amounts of your time? Today, we scream that we are already overloaded and don't have enough time for ourselves.
Creating a budget requires an investment of time in the beginning to get it started. But once you have your budget set up, paying your bills can become less stressful and more time-efficient.
With a budget, you eliminate anxiety over setting that month's priorities for payments. No more wondering where the money will come from for the next bill.
Your motivation to budget will last longer and work better if you make a point of downplaying the negative connotation of the word "budget" and working, instead, to turn it into a positive experience that will only benefit you in the long run.
These three myths have successfully prevented most people from having a lot more money and a lot less stress in their lives. Now that you know the truths behind the myths, perhaps you're ready to accept that some areas of your financial life might need improvement -- and then create a budget that works for you.
