How Budgeting Leads to Freedom

Imagine the freedom to never worry about money. Some dopes think that means having so much of the green stuff that you could never spend it all. But bad money management has put many a Richie Rich in the poor house. No, I'm talking about the kind of freedom that comes from being in control of your dough. I'm talking about a budget.

I know budgets aren't romantic. And for all those people who feel they're entitled to buy whatever they want, whenever they want it, a budget can seem like kryptonite. But you can choose to continue to see a budget as a major pain in the butt, or you can choose to see it as a useful tool that helps you spend your money on the things that are most important to you.

By Any Other Name…
Once upon a time to try and get away from the stigma the word “budget” carried, I took to calling them “spending plans.” But you know what? It wasn't the word people hated — it was the discipline, the work, the focus required to pre-determine how much you were going to spend, and then spend no more.

Regardless of whether you call it a spending plan or a budget, the point of the exercise is to decide how you'll spend your money. Having a plan gives you the freedom to enjoy yourself because you don't have to worry about how you'll pay the bill when it comes in. You'll know, right from the start, whether you can afford the purchase you're contemplating or not. And if you really, really want it, you can decide what you're prepared to give up to get it, whatever it may be.

Note: This sort of decision-making is what conscious spending is all about. Your regular expenses are mapped by a budget. When something unusual comes up, you can make the decision: Do I pull money from the grocery or gas or garden budget? Or do I wait to save for the new thing?

Have you ever made a large cash withdrawal from a banking machine only to wonder a few days later where all the money went? Think for a moment: Where did the last $100 you spent go? Stop for a minute and write it down. Chances are you can account for most of it, but there may be five, ten, or twenty dollars missing from your list.

Why You Should Track Your Spending
What does it cost you to live each month? Some people under-estimate their expenses because they forget the things that don't occur every month.

  • Did you include your gym costs even though you pay them once a year?
  • How about your house or car insurance?
  • Did you include the cost of your haircuts, your contact lenses, or your vacation?
  • Do you pay someone to shovel your snow, clean your windows and carpets or do your taxes?
  • What about your vet bills, the flowers for your garden or patio, your best-friend's birthday present?

Some people under-estimate their expenses because they actually don't know how much they're spending on things like take-out, clothes, and coffee. Over and over when I show folks how much money they're spending on the non-essentials of life, they're gob-smacked. Well, the only way to make a budget that will work is to know what you have been spending so you get some sense of what you're going to have to change.

One of the best ways to gain a perspective on your spending habits is to keep a log of everything you spend, each time you do a transaction. The idea is to figure out where you're spending all those dimes that seem to go missing each month. It's also about learning more about yourself and where your place your priorities. This isn't about shame, blame, or deprivation. You don't have to change anything you don't want to change. But you should at least know. With a spending log, you'll have a clear picture of what you're getting for your money.

When you do all your money management in your head, it's very easy to forget things — sometimes important things — that will have an impact on your overall financial life. You're always guessing how much you have left. And you shouldn't really be surprised when your account is overdrawn. After all, if you don't know how much you have, how can you know how much you can spend?

If you don't believe you can find the time to maintain your budget — collecting receipts, entering details onto your budget, adding it all up and balancing it out — think about the time you have to spend solving the problems that arise from not taking care of the details. And think about all the money you waste on overdraft fees, interest costs, and ATM transactions. You'll have to decide whether you'd rather live life peacefully, or continue waking to the specter of financial worry rattling his chains at the foot of your bed.

More about...Budgeting

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Ariella Brown
Ariella Brown
9 years ago

Excellent post. On the ATM transaction — I remember a woman observing how absurd it was that she was paying $2 to get $20 out of the ATM, but she still did it!

Kelly
Kelly
9 years ago

This is so true, Gail! Today I ran down to the office cafeteria and bought two cookies after lunch. I thought to myself afterward, “I just ate 0.66% of my monthly ‘allowance’!” I probably should start tracking my calories again too…

And, BTW, my husband and I love your show!!!

Jonathan
Jonathan
9 years ago

While I agree that budgeting can be a very good habit to have, that’s not the definition of “freedom” I prescribe to… Freedom, in a financial sense, is to cultivate a mindset that dissociates spending money with satisfaction and associates saving money with it; and by doing so, to save lots of money without ever really trying; and by so doing, not needing to worry about slotting each thing you DO spend into this category or that, or asking whether you’ve overspent in this area this month, or can you hold out til next week so it can go into… Read more »

PigPennies
PigPennies
9 years ago

While I love racking up credit card rewards, the greatest part about charging absolutely everything I can is that I can see where every penny goes. I never spend cash. If I receive cash, I deposit it into my bank account. Every penny I spend is easily tracked because I can sign in to online banking and see exactly where the money went. I heartily agree that the best way to get a person into a savings mindset is to have them estimate their monthly spending and then take a look at what the actual spending really is. The shock… Read more »

chacha1
chacha1
9 years ago

Jonathan … Gail isn’t saying that budgeting = freedom. That’s not even what the title says. I think you missed her point. You are already doing what she advises; you just have a different name for it. You maximize your savings as a first priority, which enables you to not explicitly track every expense – but that’s still a spending plan a.k.a. budget. As for dissociating spending money from satisfaction: I don’t know how many of us get “satisfaction” from the large % of spending that goes to housing, utilities, taxes, insurance, and other more or less fixed expenses. Whatever… Read more »

Jonathan
Jonathan
9 years ago

chacha1,

You’re right, I went a little overboard and I definitely agree that there is a large portion of the population (much greater than 50%, I’d guess) for whom tracking every cent would do wonders.

However, the author clearly does equate tracking your finances with achieving freedom from worrying about them, and my point was merely that true freedom from worrying about them comes from not worrying about them.

chacha1
chacha1
9 years ago

LOL absolutely!

Mr Dlie
Mr Dlie
9 years ago

I agree with this article. Each person must have a budget to control their cash flow, especially the flow of money out.

Through the budget, one will realize how much money is needed to cover operating expenses for the month.

Every expenditure should be recorded in a special book to be used as a reference in the future. Through this system, I believe that cases such as expenditures exceed revenues will not occur.

TF, Boston MA
TF, Boston MA
9 years ago

Let me second PigPennies. We use credit cards for dozens of transactions each month, largely because it forces us to keep, file, and categorize the receipts. (We have NEVER failed to pay off the full balance at the end of the month.) We do admittedly have a few thousand dollars each year of cash expenses, but can otherwise report our exact expenses by category for the last ten years. We’ve never exactly budgeted, though. Instead we evaluate every purchase, no matter how small, for its efficiency and utility. We would rather live on the minimum necessary, saving 30%-50% of our… Read more »

Beth
Beth
9 years ago

Tracking my spending was the best financial move I ever made (opening a Roth IRA account comes in as a close second). I wasn’t able to effectively save until I started recording every transaction. Since then, I’ve shooting past my original goals. Speaking of goals, I need to set new ones because I only have one left and I am confident I will get there soon. The budgeting software I use has been the incredibly motivating. It displays how much I’ve spent and how much I earned in the past 30 days in a bar graph and also creates a… Read more »

Tyler Karaszewski
Tyler Karaszewski
9 years ago

I still think “tracking every penny” is about as appealing as “counting every calorie”.

But then I’d know how much I ate! I don’t care that much.

mike
mike
9 years ago

Beth, what type of software do you use?

Caroline
Caroline
9 years ago

I have to sy, tracking (sort of) has given me a great start on saving. I put together a budget this summer that went to all my mandatory payments, including to my husband and my joint savings and checking, as well as to my own Roth and savings (401 k was separate, I only look at after tax income). I gave myself an adult allowance of $40 a week and I frankly can’t track where that has gone. But I can track every dollar in excess of that I have spent. That’s freedom, at least in my mind. Savings for… Read more »

Amanda
Amanda
9 years ago

Caroline the freedom of adult allowance in our house is that we don’t care where it goes. It is freeing. We started using a budget we found on here a month or two ago. I don’t have much time to track and our averages haven’t changed in the past couple years. I know we can spend a set amount monthly on gas, groceries, etc. For us it doesn’t matter which category it’s specifically from. So, we took that number divided by 4 and I keep track weekly. I don’t enter every purchase in my software anymore. Just a lump sum,… Read more »

bobj
bobj
9 years ago

Budgeting works!
..was able to pay Income Tax owed (that was a surprise this year) out
of my “big fancy HD TV” budget column for this year.
The point.. I had the money.
..maybe next year on the tv!

Laura
Laura
9 years ago

My boyfriend and I actually created a budget when we merged our bank accounts last year. We used mint to track all our expenses. We figured out several things: 1. We overspent on several categories (good food, giving to our families etc.) 2. We rarely or never spent money on other categories that we thought we spent money on (home furnishings, gardening supplies etc. Most of this stuff we got for free) In the end, we looked hard and realized that we didn’t want to give up the areas where we “overspent”. However the areas we thought we were spending… Read more »

Megan
Megan
9 years ago

I have an app I use that let’s me put in every purchase right after it is made. I don’t have to wait until I get home and instantly it let’s me know what is left in my accounts. I also have around $40 in cash each month and when that’s gone, it’s gone. But I don’t have to track it. I think this type of plan means freedom from deciding between a rent/mortgage payment and your cat’s shots at the vet. Not freedom from thinking about money. Also, if you find a budget method you enjoy, it can make… Read more »

Mark
Mark
9 years ago

One problem I see is that people don’t know HOW to budget. My parents THINK they budget, but they really don’t.

My idea of a budget is taken from Dave Ramsey. He says to estimate your income for the month, put that number at the top of a sheet of paper/spreadsheet, then list all your estimated expenses. Every income dollar should be assigned an expense category.

Once you start to assign your money before the month starts, you will begin to experience the kind of freedom the author suggests.

Laura in Cancun
Laura in Cancun
9 years ago

Love this post! This year my husband and I began tracking all our general expenses with envelopes and a detailed Excel spreadsheet. I also began tracking how I spent with my weekly allowance on a separate spreadsheet. I was able to cut my weekly allowance from $80 to $50 without much difficulty thanks to tracking every penny. This month we’re also going to save money for the first time… $250. Next month we’re set to save over $600. We’re very excited. It’s not hard to do so long as you write down every expense as soon as it happens. At… Read more »

K.C.
K.C.
9 years ago

Gail, bravo on saying what needs to be said about budgeting.

A budget is a planning and information tool.

Budgeting is simply planning and prioritizing spending before you start to spend. The freedom comes from knowing that everything that is important is covered, before you start to spend. With that knowledge you can spend with peace of mind.

Tracking spending against the budget provides the information you need to make those conscious spending decisions. Those decisions will only be as good as the information upon which they are based.

My Money Mess
My Money Mess
9 years ago

One thing that I’ve found that makes sticking to a budget much easier, which is somewhat in alignment with what Jonathan said, is to build the budget around your core values and financial goals. Makes it easier to determine what you really want to spend money on and what you don’t.

sey
sey
9 years ago

I just set a certain budget for each week and start the week by buying groceries ( = the neccesseties). The rest is free to evaporate – gives me freedom and control. Of course there’s also some part that’s saved, longterm or for things coming up, but they’re not included in the weekly budget. If there’s any budget money left after the week it goes into the “found money box” which also holds money I didn’t think I’d have in the first place – it’s for the big fun stuff. 🙂

Project Management Tools That Work (Bruce)
Project Management Tools That Work (Bruce)
9 years ago

Tracking ones expenses for just a week is eye opening. A month is better. A year is great. Continually is best (a well run business will do it, so it makes sense it would be useful to us). Don’t guess at your expenses. Just tally them up for a period. Worst thing I’ve seen is people “guessing” at what they spend or how much they need for a budget (business managers have this challenge too when budgeting time comes around). If I spent $100 on gas this month, then my “budget” is $100 for next month. After a few months,… Read more »

Bluskygirl
Bluskygirl
9 years ago

Budgeting is a very effective tool; and I think if you have the capability of using a credit card to track everything AND pay if off within the grace period, that’s awesome. Here’s a trick I learned from another blog which I did one month and though was very effective. This is great for people who have a credit card with an existing balance and don’t want to add to the accrued interest. Take envelopes and label them for each expense (for me I used grocery, gas, and miscellaneous), and at the beginning of the month (or twice a month… Read more »

Ely
Ely
9 years ago

I hate hate hate tracking. I just pay all my bills & transfer all my savings as soon as I get paid, and what’s left I can spend.

If I have money left at the end of the month, I increase my automatic savings amount. If I run out of money… I look and see if I spent more than usual somewhere (using debit/credit is great for automatic tracking) or if I’m actually trying to save more than I can afford. It’s a balancing act, but it’s soooo much easier than trying to track every penny.

Sun W Kim
Sun W Kim
9 years ago

I use SmartyPig and contribute to a goal monthly to pay for annual personal and business expenses. Gym membership, contact lenses, web hosting, subscriptions, holiday gifts, birthday presents, etc. A little planning can save a lot of money, especially on business expenses since you get a discount if you pay annual versus monthly.

Stuart @ Budgeting Steps
Stuart @ Budgeting Steps
9 years ago

They say that becoming wealthy is not about how much you make, but how much you do not spend.

Dan Blakely
Dan Blakely
9 years ago

Absolutely agree that budgeting takes discipline and is an essential step for anyone truly seeking financial freedom. Look, is budgeting fun… not necessarily but when you find yourself having success in controlling your spending and meeting your goals and long term dreams then you feel the self love! I think that one of the problems is that many people have no real vision, plan or strategy for who they are today and where they want to be with their life in 1, 3, 5, 10 years and beyond. The lack of goals like these lead to the lack of motivation… Read more »

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