What a 'Budget' actually means

There is a common misunderstanding about the term ‘budget’ as many perceive it to mean it’s put into place to limit yourself from the things you want.  That is just not true.  As most resources and tools are used to track progress, a budget is used, according to an article by Jenius Bank, to,”...help you find balance between paying for essentials and creating space to purchase the things that make you happy” (Jenius Bank Team, 8 Budgeting Tips for Healthy Finances).

Although it may be challenging to use a budget efficiently, there are several benefits that it can provide as an individual attempts to navigate their financial situation.  Beginning to use a budget is hard, however, it becomes easier as one begins to understand their problem areas, differentiating between what needs to be paid for and what a person wants to spend money on.  Feeling empowered to take a hold of your finances builds confidence to instill changes, thus, establishing better expectations and developing routines that allow you to obtain realistic and reachable goals.  And never forget, there is always help available.

Problem Areas

Problem areas include misusing spending vehicles (e.g. credit cards), not comprehending the information of offers from banks and loan institutions about obtaining borrowed money, spending more than saving (i.e. spontaneous spending, no cap on spending, etc.), getting out of deep debt and not automating payments.  These can put a person into a difficult position financially, but also mentally, adding to the fatigue and shame that already exists as a result of these issues.  

Taking accountability is a great way to start understanding how to rectify these issues and break down your financial foundation, to then build it back up.  As soon as you can understand the basics of what is happening, you can be better educated about how to fix the problem/s.

Accountability takes the form of consistent check-ins; adjusting your budget more often as things change, such as life events.  Avoid making major mistakes with constant re-adjustments to your financial foundation.

Wants vs. Needs

Differentiating wants vs. needs comes down to the concept of ‘enough’ and living within your means.  Taking the realistic approach of living within your means and allowing yourself the ability to also enjoy your life the way that you want to create balance towards eliminating stress about finances.  By restructuring inflows and outflows, an individual can better position themselves to make more informed choices about what they need to spend money on and what wants are acceptable within the means of their specific life and budget.

Needs

Identify what needs to be paid for on a monthly basis; fixed costs that are paid every month.  These are essential bills that are ‘no excuse’ payments.  They also include savings of short and long term, as well as investments.

Wants

These purchases are merely to benefit happiness; they are not meant to hinder spending but to allow small wins over extended, more consistent periods of time.  Consistent small wins versus large spontaneous purchases satisfy the same thing and don’t aid large financial holes previously dug.  Continue to allow room for wants while being smart and realistic; if wise spending corresponds to more saving and living the life you want, that is a win.

References:

https://www.jeniusbank.com/blog/articles/budgeting-tips-for-healthy-finances