Have you ever considered the consequences of not budgeting? If not, now is the time.
When it comes to personal finance, there are a number of negative outcomes that can come from operating without a budget. And, the longer you take to implement a budget, the more painful these consequences can become. So, what are the consequences of not budgeting?
In short, the most common consequences of not budgeting include a lack of savings, less financial security, out of control spending, a higher likelihood of going into debt, and more financial stress. In addition, when you live without a budget, it becomes more difficult to navigate unexpected expenses, and achieve your financial goals.
And, if that wasn’t enough to get you to create your first budget, in this article, I am going to cover 8 painful consequences of not budgeting. So, if you are on the fence about this whole thing, I highly encourage you to keep reading.
1. More Difficult To Achieve Your Financial Goals
One of the most important things you can do if you want to achieve your financial goals, is create a plan of attack. Beyond that, you need a way to keep track of your progress, so that you can course-correct if you start to drift off-track. And that’s exactly what a budget does for you.
For example, if you set a goal to save a $25,000 emergency fund over the course of a year, then that means you need to save $2,083.33 every month. With a budget, you can easily plan your spending and cut expenses in order to achieve that goal. On top of that, if you continually track your expenses, you will be able to identify when your spending is drifting off course, and what you need to do to fix it.
All of these things make achieving your financial goals a much clearer and defined process. And when you choose not to live by a budget, you miss out on all these benefits.
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2. Lack Of Savings
When you don’t know your exact monthly income, or your total monthly expenses, it’s much more difficult to save money. Why? Because without a budget, the amount of money you save each month depends on how much you spend. And while that might seem logical, it is a bad way to operate your financial life.
Instead, your spending habits should be based on how much you decide to save each month.
For example, if you make $5,000 per month, and you want to save $2,000 of that, then all you need to do is figure out how to live off of $3,000 per month. And that’s where your budget shines.
The best part about operating your finances like this, is that you can save your desired amount the moment you receive your paycheck, and without worrying that you are over-saving. This is often called the ‘pay yourself first’ method of personal finance, and it is the best way to build savings because it places a higher priority on saving than spending. But, it requires a budget.
3. Less Financial Control
Before I committed to budgeting, I operated my finances using ballpark numbers. In other words, I had a general idea of my monthly expenses, but if you pressed me, I couldn’t give you an exact number. It was a lazy way to manage my finances, and it didn’t lead to good things.
So, when I tell you that one of the consequences of not budgeting is a lack of financial control, I am speaking from experience.
It wasn’t until I started budgeting that I finally felt like I had complete control over my financial life.
Now, when my wife and I make any sort of income, or spend any money, we immediately plug it into our budget. So, at any one time, we can log into our budget and know exactly where our financial situation stands.
4. It’s Too Easy To Overspend
Budgeting creates boundaries within your financial life. When you budget properly, it’s easy to know how much money you can realistically spend on food, housing, automotive expenses, and just about anything else, while still staying on track to meet your financial goals.
On the other hand, living without a budget, removes most of the boundaries that keep your financial behavior in check. And when that happens, it becomes a lot easier to blow through your money and end up broke.
5. More Debt
When you live on a budget, one thing becomes abundantly clear: debt sucks. I can tell you from personal experience that when you have to subtract a bunch of debt payments from your total income every month, it’s easy to develop an allergic reaction to the idea of taking on more debt.
But here’s the thing, when you don’t live on a budget, you lose the constant reminder of how harmful debt is on your financial life, which makes you more likely to go into more debt. And the more debt you take on, the more you reduce your net worth. It’s a vicious cycle, and by the time you start to feel the negative impact of debt, you are in a financial hole that will take years to climb out of.
Having been through the process of getting out of debt, myself, I can tell you that it is a financial consequence worth avoiding at all costs. The good news is, budgeting is the best way to avoid it.
6. Harder To Navigate Unexpected Expenses
One of the hardest financial obstacles to overcome is unexpected expenses. One moment you feel like your finances are completely in control, and the next moment your car breaks down and you have to pay for a new transmission. It’s in moments like this, that you will really feel the consequences of not budgeting.
You see, without a budget, it is much harder to manage the financial repercussions that an unexpected expense can have on your life. It could end up causing you to miss bill payments, or even go into debt in order to make ends meet.
Meanwhile, if you just take the time to budget and prepare for unexpected expenses, you can drastically reduce the impact they have on your life.
7. Less Financial Contentment
When you don’t live on a budget, it’s easy to lose focus on your own financial goals, and instead, find yourself comparing your life to others.
The unintended consequence of this, is that it leads to negative financial behaviors like spending beyond your means, and taking on debt to purchase things you can’t afford. Instead of trying to improve your financial situation, you end up trying to keep up with others that have a bigger house, or nicer car than you.
It’s toxic. But the good news is that budgeting can help prevent it.
8. More Stress
I think the overarching consequence of not budgeting is an increase in stress. Think about it. Whether you’re unprepared for unexpected expenses, you feel like you’ve lost financial control, you spend beyond your means, you’re buried in debt, and you’re unfulfilled with your financial life, it’s stressful.
So, why not get on a budget and prevent all those things? In my opinion, the consequences of not budgeting just aren’t worth the risk.