Budgets are the only way to make sure that your money is being used properly and to get control of your spending. If you don’t have a detailed budget, you are doing yourself, and those who depend on you, a disservice. I know a budget may be a scary notion for many people, as most don’t want to know what they’ll find, but it’s the only approach towards financial freedom. Saying that you don’t like keeping up with how much you spend, or that budgets don’t work because every month is different, is a cop out. Any entrepreneur who is serious about their finances will prepare for the future by tracking their finances and having a plan.
I often ask my Life Coaching clients, who are entrepreneurs, if they have separate personal and business budgets. Often the answer is “no”, which is not shocking since about 70% of Americans don’t budget at all. It’s not the end of the world if you don’t have a budget, but having a jumpstart on your financial situation saves stress down the road. I know that we’ve been trained to be secretive about our personal finances and I’m by no means advocating you walk around and tell everyone your financial status. However, there needs to be accountability when it comes to money. A budget can drastically change the projection of your entire life and here are a few reasons how.
It will show you where you’re wasting money
When you keep a detailed zero-based budget, you know where every dollar that you spend is going before the month even starts. This is a tremendous advantage when monitoring your spending habits. Most of the time you’re spending money on things that aren’t going to make you wealthier in the long-term, but are satisfying to buy in the interim. Some of the most common areas that people waste money on are eating out, clothing and car payments. Imagine if you didn’t have that $450 car payment or you didn’t eat out three times per week (which is easily about $250). That’s a nice chunk of money that could be going to your emergency fund, retirement or paying off debt (if you have any).
It helps you prepare for emergencies
Life is filled with unexpected events, some good and others not so much. If the car breaks down, the business isn’t doing well or you get sick and can’t work, having an emergency fund with three to six months worth of living expenses can save you from years of heartache and stress. It will likely take time to save up that emergency fund. Having a budget will allow you to set a realistic goal to save each month instead of spending money on frivolous items that perpetuate the cycle of living paycheck to paycheck.
It keeps you focused on your goals
Having a budget will help you reach short and long-term goals. If you go through life without having a concrete plan for your finances and continue to spend money on anything that catches your eye, it will be difficult to save up enough money to put a down payment on a home, take your dream vacation or just have enough money to feel secure. Adhering to a budget enables you to create goals and save money so that you can make your dreams a reality. It is without question inconvenient when you can’t buy that new shirt or go to your favorite restaurant with friends because it doesn’t fit into your budget; however, when you remember the goal you’re trying to reach, it makes it a little easier to forgo that impulse buy.
As entrepreneurs with so much going on, it’s easy to forget how important having a budget is. I have never had anyone I helped create with a budget not be thoroughly satisfied with the outcome several months down the road. It’s not easy, but having a budget is absolutely necessary for your future and peace of mind. It doesn’t matter if you make $20,000 or $2 million per year, you should have a budget that you can adhere to. A wise man once told me, “it’s easy to make a million dollars, but it’s very difficult to keep a million dollars.” A budget is the first step to helping you keep the money you’ve worked so hard to earn.
Guest post written by Sherman Merricks, Owner of Notable Guidance
Sherman is a passionate entrepreneur, leader and motivator — making him an effective and insightful Life Coach. He is the owner of Notable Guidance, a life coaching business for entrepreneurs, as well as Dynasty CrossFit. His love of fitness, travel and continued learning are beneficial in his journey to help other entrepreneurs.