Dear daughter,
I wrote three letters to you about budgeting. Today, I want to show you why is important to have a budget.
The main reason why you want to have a budget is to have control. Do you think it is important to have control over your finances? If your answer is yes, then it is a must to have a budget.
Let me give you more details by using some examples.
Do you feel the money you are earning is not enough to cover your expenses? Does your salary finish before your next paycheck arrives?
If your answer is no, congratulations!!! You are already on the right path.
If your answer is yes, then you have a budget problem.
How so?
If the money you earn in a specific month, finishes before the next earnings it means you are living over your means. In other words, you are spending more than what you are earning.
Sometimes I hear people saying they don’t earn enough money. All I hear is they spend more than they can. They live over their means.
Why?
Simple my daughter. If you don’t earn enough to buy the expensive salmon fillet, then you shouldn’t buy it. If you buy it, your money will finish sooner than it should finish. At that moment, the only solution to buy bread will be to borrow money, because you spent all you had on salmon fillet.
It is just common sense. Why do people have much debt and their salaries are not enough for them? Because common sense these days is very uncommon.
It is clear to me that the solution to this problem is to have a budget.
After you create a budget, you will know that you can only spend a certain amount on food, because otherwise, you won’t have food at the end of the month. So, if you know that, then do not spend more than you can on your food. The same applies to the other categories.
If you just follow this simple but powerful tool, a budget, you won’t have money problems. You won’t have to borrow money because you will learn to leave under your means, or with less money than you make.
Let’s say now you want to buy those new Adidas sneakers you saw in the shop yesterday. You need a certain amount of money to buy them, which you don’t have now.
The first step I’ll take is to find out how much money I can spare from my salary or one of my side hustles for a certain period. Once I know that number, I’ll know how much I will have to wait to buy my sneakers.
“Dad, there is no mention of a budget there”
“How do you think you can know how much money you can spare?”
If you don’t have a budget, which includes money allocation per category and expense tracking, whatever number you come up with, is just a wild guess.
Money and guess shouldn’t be in the same sentence, my daughter. Remember the main reason to have a budget? It is to have control. And control is not about guessing, is about knowing.
See another example. You want to give a great gift to your sister on her next birthday. You know great gifts are usually expensive, not always but probably most of the time.
So, what do you do?
You are right, you add it to your budget with enough time. If the gift you want to give her will cost you $300 and you have 6 months left, then you should add to your monthly budget a new category “Gift for my sister”, and plan $50 every month for the next 6 months.
If you do that, when the time comes, you will have the money to buy the gift you want for your sister. You will be in control, and you will feel great! Because you achieved what you wanted to achieve, to give that gift to your sister. How did you achieve it? Using your budget!
The example of the gift for your sister can be extended to a gift for any important person in your life, your mother, grandparents, your partner in life, etc.
Do you want to be in control of any money-related matter? If yes, the answer is to start with a budget. You will have to do more than a budget, but the budget should be your first step.
As the Chinese proverb states, the 1000 steps journey starts with the first step.
And that my daughter, is why I truly believe it is very important to have a budget. I can’t wait to see your first budget.
Love you, Dad.
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