Why is a Budget Important?

I used to work at Triple A in their road service division. One of the responsibilities I had was to ensure that our members were receiving the free maps they requested. Members could request any number of maps. Triple A maps were always the best in my opinion. They were very thorough and reprinted often in order to keep up with the road changes. As you can imagine during the summer vacation months the requests for maps were at a peak. Triple A is kind enough to its members to provide more than just maps. They provide “triptiks”. These are custom made guides that direct members around road construction and other travel obstacles as well as provide helpful travel advice. It comes in a bound paper format that allows you to flip pages to more directions as you make progress in your trip. Between the maps and the triptiks Triple A members who are traveling have a lot of confidence about getting to their destinations safely and quickly.

A budget roadmap for financial success

A budget does the same thing as those Triple A maps do and a written financial plan is just like the triptik. A financial plan contains your goal and the steps you will take to get there. It details the signs you will look for to indicate you are moving in the right direction toward your goal. It contains notes and pointers that suggest courses of action for any particular event. Like a triptik your financial plan will also point out areas to avoid. Areas that could be costly to you and throw you off course. A budget accompanies a financial plan and is based on 1) your income and 2) your goals. The budget accounts for all the money that you have as income and then it provides you with direction on either stashing or spending it. Like the map keeping you on the right road the budget keeps you and your money on track.

I once drove from Penn Hills to Virginia Beach on my own with no map. I had been there before and planned on using all major highways; no shortcuts. To make a long story short the trip was supposed to be about 450 miles. It was about 600 miles for me by the time I got finished. I was wrong about remembering how to get there and made several very costly mistakes. Thank goodness I finally figured out that there were maps posted on the walls of rest stops. The same kind of wasted effort can happen to you when you don’t use a budget. Even for seasoned money managers a budget is a must. Without a budget you are setting your money up to get lost just like I did on my way to Virginia Beach without a map.

A budget is important for everyone from CEOs to paperboys

Anyone who has any kind of income should be using a budget to account for the dollars coming in and going out. That means millionaires as well as kids delivering newspapers. Believe it or not it is just as easy to lose hundreds of thousands of dollars as it is a few bucks if you are not paying attention. I did it and learned the hard way. Actually, in my case I did have a budget but didn’t stick to it and paid the price! Budgets can be very simple and are expandable to meet the needs of even the most complicated situations. If you have $1.00 of income and only one expense your budget will be pretty basic. Obviously, the more money you make and the more expenses you have there will be more items to manage in the budget.

Some people look at the budget every day. That is ok, but for most people, referring to your budget when they are paid or paying bills is good. On the usual expenses you may not see too much change very often in your budget. However, there will be times when there is a new event in your life that requires a budget review. Most companies conduct a regular budget review and you should as well. The budget will need changed when there is a change in your income, an expense has been added or eliminated, or you foresee an expense in the future that will need addressed. A budget is not a static object. It will change as your financial circumstances change. Your job is to stay on top of those changes and account for them in your budget. Keeping your budget updated with accurate information is critical to your personal financial planning.

A budget will find more money for you

Finding opportunities to get more out of your income is one of the most important reasons to maintain an accurate and current budget. The goal I have for every one of my students is to get them to a point where they can demonstrate they are getting 125% for 100% of their money. In order to do that you have to be able to pinpoint areas where you can 1) generate more income, 2) pay less in tax, or 3) cut or eliminate expenses. When you learn to read your budget with an eye trained to look for those opportunities you will find yourself getting much more than 100% for 100% of your money.

It doesn’t hurt to get help

There is one other interesting note regarding Triple A maps and triptiks as they relate to financial planning. Triple A trains people to become “Map Markers”. Map Markers are people who are very familiar with current road construction issues, seasonal weather as it relates to travel, and even rest stops and sight seeing. They are the biggest reason the triptiks are so popular. All the extra traveling insight the Map Markers add to the triptiks makes a big difference for Triple A members that someone using Mapquest or another mapping program wouldn’t have. That same can be said about people who use financial coaching, like that found on this site, in setting up their own financial plan. They have a real advantage in having a seasoned financial coach help them avoid mistakes and think of things that they may not have come up with on their own. Budgeting is crucial to your money success. Be sure to write one, get seasoned help reviewing and finalizing it, and then stick to it!