Contrary to popular belief, money has no value what so ever until you spend it. It is what you spend it on that has value. The value we place on money is dependent on what we think we can buy with it. The money you are paid as a salary is just a number written on a pay slip or is deposited directly into your bank account in exchange for the service you provided to your employer.
Why is budgeting so important
Since the value of money comes from its buying power, planning your spending ensures that you have enough money for things that you need and for things that are important to you. A spending plan will also keep you from spending money that you don’t have or help you get rid of unwanted debt. (Not all debt is bad)
The buying power of money is determined by the supply and demand for goods in the economy. Inflation in the economy causes the future value of money to reduce its purchasing power. A budget helps you figure out your short and long term goals plus measures your progress.
- Shelter – rent, mortgage, property taxes
- Utilities – heat, hydro, water, cable, internet, cell phone
- Transportation – bus pass, car payments, gasoline, repairs
- Clothes & Accessories
- Insurance – car, home and life
- Entertainment – including vacations
- Emergency fund
- General savings – major purchases, debt repayments, retirement
It is really important for seniors to have a budget. You don’t want to outlive your money and be a financial burden to your children. There are three stages of retirement, “go go”, “slow go” and “no go”.
You tend to spend more money in the “go go” stage since today’s seniors are healthier than previous generations. Plus, life expectancy has increased so seniors will also have more leisure time.
As more people are living longer, the “no go” stage in retirement can become very costly due to the increasing risk of health problems. The risk of developing a cognitive disease like Dementia or Alzheimer increases with age. Costs for caregivers, assistance living and nursing homes are not cheap. (The cost for my elderly mother’s caregiver is about $20,000 per year)
Why people don’t budget
- They’ve got the wrong idea. Budgeting’s got a reputation for being too restrictive; you work hard for your money, why shouldn’t you be able to spend it as you see fit? But it isn’t as terrible as it seems. In fact, when you stick to a budget, you’re likely to have even more money left over to do with as you please. Budgets shouldn’t be about making big restrictive changes. Rather, when you examine your finances, you see small ways to make changes that will have big effects.
- It is intimidating. Got a vice that you don’t want to give up? Scared that if you make a budget you won’t be able to stick to it? There are tons of reasons you might fear drawing up a budget, but that shouldn’t keep you from trying! When you create a budget, you’re enabling yourself to find and fix the financial mistakes you make, rather than ignoring them and hoping they’ll go away by themselves.
- It is time-consuming & boring.Unless you have a passion for spreadsheets, chances are that budgets bore you to tears. You might not want to budget because the actual act of budgeting just seems like row upon row and column upon column of money that’s no longer yours.
- They think they don’t need to. In today’s economy, not many people can say that they don’t need to budget because they have enough money. Even if this is the case for you, a budget can always help you to save more.
- They think a budget can’t help. Most of us have heard the adage ‘the first step to recovery is admitting there’s a problem.’ Debt is a very personal issue and it can be difficult to admit, even to yourself. There are a variety of ways to help clear your debt and drawing up a comprehensive budget is the best way to start doing this.