Before achieving financial independence, I was blissfully unaware of what a budget was or why it was vital to have one. In fact, even after fending for myself for a while, there was a time where I still didn't think a budget was needed!
What a mistake that was! I used to just spend my money when I had it, where it was needed, when it was needed. No plan, no clear 'big picture'. Without realising, I was committing one of the biggest mistakes when it comes personal finance management - no budget, no plan.
I am sure many people I know, do go about life in such way, and although it might seem to work for them, it never really would've worked for me. You see, the biggest flaw with the lack of budget or plan, is that it doesn't let us account for the real total monthly expenses.
Take christmas for example; we all know it is coming, and that it will be at the same time as it always is, and yet most of us will use one or two month's spare income to tackle it. This contributes to a last minute attitude towards any gifts, with the real potential to increase how much is actually spent.
A monthly budget where you allocate a small amount for christmas expenditure, will allow for that money to accrue over time and be available when needed! This decreases the stress related to big expenses.
|I use YNAB to help me budget!|
This is valid for many types of one off expenses such as: Car maintenance, Holidays, Christmas, Birthdays, Mother's and Father's day, and so forth! If, for example, you save £15 per month under "Car", you know that when the yearly MOT+Service is due, you will have £180 available for that purpose! This method has undoubtedly allowed me to have a much more relaxed spending pattern, where I don't have to stretch so thin some months, and also allowed for a much wiser use of my money, due to the increased planning time.
It also has the potential to decrease any last minute spend on credit cards, decreasing expenditure on penalty or interest fees!
I hope this is of some use to you ! Feel free to leave a comment if you agree or disagree!