There are many misconceptions around what budgeting is and what it involves. Many people view budgeting as negative and restrictive, hence never giving it a fair shot. Here our team bust some of the myths which surround budgeting and hope to allow you to see the process in a whole new light!
This is probably the most common myth that surrounds budgeting. Living by a budget is seen as living as frugally as possible and denying yourself any luxuries.
However, the reality is very different. As we’ve talked about, the process of budgeting is simply about balancing your income and outcome and thus making a plan for how you’ll spend your money. It’s obvious that if you’re spending more than you’re bringing in, you may have to make cut-backs on any unnecessary spending.
But the essence of budgeting is about creating a plan for how you’ll spend the money that you have. This includes the essential, fixed expenses such as the mortgage and bills. It also includes the non-essential, variable expenses – what we call the "fun stuff". This might mean holidays, nights out and takeaways. A good, robust budget should include everything that you spend.
By creating a budget, you may find you’re spending more than you’d like on the non-essentials and can then decide whether to cut back these expenses – perhaps putting more money into savings. Budgeting simply enables you to prioritise your spending – not necessarily restrict it.
Let’s be honest. Unless you’re an accountant, listing all of your expenses and starting a budget isn’t anyone’s idea of fun! And yes, initially it takes a little time to get a budget set up.
However, from our experience, it takes very little time to maintain an active budget – perhaps 30 minutes each month. Furthermore, having a budget in place allows us to have more fun – without feeling guilty. Often people feel bad when they treat themselves but if it’s included in your budget, you have nothing to feel guilty about.
We really have to challenge you on this one. A budget that is in your head can’t be tracked, therefore it isn’t a proper budget.
I was recently trying to lose a few pounds by keeping a track of my calories in my head. I couldn’t understand why it wasn’t working. Eventually I decided to use an app to track what I was consuming. Guess what? I immediately started losing weight because I was being honest about what I was eating.
It’s exactly the same with budgeting. It’s really easy to forget what you’ve spent or dismiss a purchase because it’s “insignificant”. Whereas if you’re putting your budget down on paper (or in Budget Pro! ), it’s much easier to track and ensure that everything is included.
So get that budget out of your head and down in black and white!
Wrong! The process of budgeting is about managing the money that you have so regardless of your income, budgeting has several advantages. It can help you to build up savings, prepare for unexpected expenditures or control impulse spending habits.
In short, budgeting is about making a plan for how to spend your money so your level of income is irrelevant – everybody needs a budget.
Unsurprisingly, we disagree! Budgeting helps ensure that you’re prepared for managing unexpected expenses. An effective budget should always include a “miscellaneous” category which can be used to cover any unexpected costs. However, it’s really important that this flexibility in your budget isn’t abused. An unexpected expense is the washing machine needing replacing – not a new handbag or a spontaneous night out!
Just another myth to be busted! The maths required for budgeting is child’s play! Sure, creating a budget needs a basic grasp of numbers but it’s nothing complicated. You start with the money you bring in after tax. Then you need to add up your expenses each month. Your aim is for your expenses to be less than your income each month. If you’re unsure, check out How to Start Budgeting.
Besides, if you use Budget Pro , we’ll do the maths for you!
There’ll always be an excuse for not starting a budget but the truth is that there’s no reason why you can’t start budgeting now. So whether you’re in debt or need to save for a big life event, having a budget and developing good money habits can help you to achieve your financial goals.
If you want to find out more about budgeting, check out our Budgeting FAQs.