THE most critical tool in your Personal Finance utility belt!!

What is this tool that I've lauded so highly with a title that's too many words too long? Get ready for it....a Budget!! (Cue the fireworks!)

If you're still with me this far, congratulations! You've made it further than most! By this point, most readers have either: hurriedly clicked the X at the top right of the page to close the browser, felt offended at reading what they consider a cuss word, or fallen asleep at the keyboard just thinking about the word. That your response isn't one of those tells me you're interested in financial fitness. And make no mistake, financial fitness cannot be achieved without this boring yet financially landscape altering word, BUDGET.

A budget, simply put, is a written plan where you account for every single dollar/pound sterling/shilling/euro, etc, you earn as income. It is, as Dave Ramsey puts it, telling your money where to go instead of wondering where it went. A budget is the equivalent of a GPS, a map. A well written household budget, or cash flow plan, tells your money exactly where it's supposed to go and refuses to be bullied by that new iPhone upgrade, or that fill-in-the-blank financial temptation, or even those tempting golden arches that ask if you want fries with that.

A good budget is your monies best friend. Having a clearly written budget before payday creates a clear boundary line in advance of the money arriving in your bank account. The budget is a financial watchman that says that anything outside its lines will NOT, under any circumstances short of a true emergency, be purchased. (Realistically speaking, when the McDonalds drive thru calls your name, it's hard not to answer. Therefore, a budget is only one of the tools in your financial fitness utility belt, not the magic bullet. It is, however, THE most important part of your financial plan.) Whether you make $10 an hour or $100,000 a year, you need a plan. Not having a budget is the equivalent of getting into your car and driving and when asked where you're going, saying "I'll figure it out once I get there." Uhmmm what?! There is a direct co-relation between constantly having more month at the end of your money and not having a budget. A budget is a MUST if you want to make solid financial strides. In the same way that abs are made in the kitchen, financial fitness is made in the budget. You can no more out-earn the lack of a plan than you can out-train a bad diet.

With that being said, it'd make sense that everyone has this habit down pat. False. According to Gallup's annual Economy and Personal Finance survey from 2013, only 1 in 3 people budget. That stat is unlikely to have changed much in the last 7 years. Odds are you may be on the 2 out of 3 side of that stat. A few short years ago, I was also on the wrong side.

After graduating college, I lived with my parents and apart from a few personal expenses like my phone bill, insurance and car payment, I had few financial obligations. I got a stable job with a decent enough income for a regular single person, but adjusted for my living situation, I had a rock-star income! I had money all right, but what I didn't have was a plan for that money. Now, if you're expecting me to regale you with tales of how I blew large wads of cash, I'm about to disappoint you sorely. Of course I misused my money; hello $200 sneakers, but for the most part, it was with very little fanfare. Since I didn't have a plan for my money, it simply came, and went. I was never robbed or mugged, but my bank account suggested that I was. Constantly. Looking back now, I can never compute how I got through those 3 years and had nothing saved at the end of them.

After I began to budget, I plugged the leaks on the ship. Suddenly I became Tom Brady in the pocket, or Lionel Messi at the free kick line, or Steph Curry at the three point line. If the sports analogies that I've leaned into too heavily there didn't actually communicate my point, I'm saying I became clutch with my money. That probably still doesn't clear it up. I became very surgical with my income is my point. I didn't get a pay raise, but budgeting made me feel like I got one. I started making money goals, and even better, I hit them. Because of the practice of budgeting, along with self-discipline and sacrifice, my wife and I kicked $40,000 or so worth of debt to the curb. To this day, we have a clear budget before every pay check, and I can attribute a lot of financial peace of mind to this simple habit.

I understand that circumstances vary, but not having a budget is not an option. If you don't have one, you have a hole in your ship and you're hampering your own progress from the inside. Your belt cannot afford not to have this tool!

While writing the budget is the first step, doing it every single month is the key to long term success! Stay tuned for the follow up where I talk about the characteristics of a good budget.

p.s. If you'd like help in budgeting, or in any other area of your financial journey, fill out the short form at the bottom of this page and schedule a session for us to chat! I'd love to talk with you!

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Cover image designed by Anastasia8 (Image #13808892 at VectorStock.com)