Be Smart: Why Everyone Needs a Budget

June 2018.

By Jeff Headrick, Financial Planner. 

I have been in business now for almost 20 years. If there is one thing I have learned, it is that everyone needs a budget. I think that a lot of us are under the assumption that only people that are struggling financially need to do a budget. If people are struggling financially then they need to get their act together and do a budget, right?

But what about the people that are not struggling financially? What about the couple that makes $100,000 a year or $200,000 a year? Do they not need to do a budget because they make so much money? These are the things I’d like us to explore.

Everyone Needs a Budget

Of course, all of us may agree that those that are struggling financially need to do a budget. But I have learned over the years that many doctors, lawyers, and other talented professionals that are making phenomenal incomes, also need to do a budget. I can verify this by telling you unequivocally that many households that make over $200,000 a year, probably have less of an idea of how they actually spend their money than the households that only make, say— $100,000 a year. I don’t think this revelation is exclusive to my practice. So, whichever boat you are in, simply ask yourself this question: Do I know where my money goes every month?

Budgets are not Complicated

There are a lot of great apps available these days that can help you create a budget. Here’s a link to some of the better budgeting apps available. You can also use a simple PDF like the one I’ll attach hear from Dave Ramsey. Dave Ramsey Budgeting Tool. You can even start out by simply using a yellow legal pad. The main thing to keep in mind when evaluating your income and your outgo, is that you need to evaluate it. Don’t get caught up in the “how”! Get caught up in the “do”.

Budgets Elevate Your Financial Game

I’ve learned over the years that we need to treat our personal finances as if they were the finances of a large corporation. Large corporations don’t forgo doing a budget because their profits are currently high. They do a budget because it’s smart business. And all of us are guilty, present company included, if we believe we don’t need to do a budget because we currently have a surplus cash flow and a little money in the bank.

I have had more clients than I can count over the last few years come to see me who made very large household incomes. Most of these high-income earners contacted me originally because they had some money to invest— not, because they wanted me to look at their monthly cash flow. And while I am always happy to provide investment advice, I have an ethical responsibility as a financial planner to at least look under the hood, and see how all of my clients are spending their money.

In almost all cases, most people are wowed after we twist their arm and make us show them their budget. This is where they find extra money! This is where they realize that their surplus could be greater! This is where true short-term and long-term elevation can be achieved quickly. You’re just taking money out of one pocket and putting it into another with a little more intentionality.

Get Smart!

If you want to elevate your financial game— start using a budget. If you are married, start doing this task together so that your “corporation” can have all its team members on the same page. Whether you’re struggling month-to-month to make ends meet, or whether you just received a $50,000 bonus, chances are that utilizing a budget to track monthly cash flow will pay huge dividends. It’s not hard, it’s not complicated, it’s just smart.