Having a budget and sticking to it is a common practice — anyone in a leadership role with a company knows this well, and even the government has a budget to balance. Yet as an individual responsible solely for your or your family’s spending, is a budget really necessary?
No, say some experts offering their two cents — as long as you are good about saving money and have a surplus each month after prioritizing and paying bills. Nick Holeman, certified financial planner at Betterment, told CNBC’s Make It column, “As long as you know how much you need to be saving and you’re saving enough each month, who really cares where the rest of the money goes?”
So, if you pay all your bills on time, and your necessary expenses like rent, utilities and food don’t tend to fluctuate — and you are putting some money aside for retirement and an emergency fund — then it’s really not imperative to analyze what you spend on day-to-day purchases, or even larger ones like a trip or new clothing.
In an interview with CNBC, Kimmie Greene, a money expert with Intuit, says that focusing on how much you’re spending in one area versus another is kind of missing the point. “People can get really hyper-focused on spending … [but] as long as I can save this much per month or quarter or year, it doesn’t really matter how I spend my money. I just have to know that I’m getting to the savings goal that matters for me at this point in my life.”
However, some people do need the structure of a budget to keep to their goals. Some experts suggest 50/30/20 rule, where you allocate 50% towards needs, 30% towards wants and 20% towards paying off debt and then using that amount for building savings once debt is paid off.
As GOBankingRates previously reported, this method, popularized by Sen. Elizabeth Warren, may help people reach their financial goals faster by automating the process. It could also help you see where you might need to advocate for a raise, change jobs or add a side gig as time goes on and your expenses increase.
Of course, plans like 50/20/30 only work for people who have money left over every month after paying their bills. This is a hardship for those who live paycheck to paycheck, with an estimated 63% of Americans falling into this category, according to CNBC. If you don’t have much left over after paying bills, it might be good to prepare a budget to help keep you on track and reveal whether there are areas where you might be able to cut back — perhaps by eliminating unused streaming or food delivery services.
Budgets are not a “one size fits all” solution and can be especially challenging for anyone with inconsistent income and expenses — for example, freelancers who don’t have a set salary paid out on a yearly or even monthly basis.
A budget can be compared to dieting, where people feel restricted and may feel like a failure if they don’t meet their goals, Forbes noted. Being more mindful about your relationship with money is a healthier approach, said Dana Miranda, founder of Healthy Rich, a “budget-free” financial education website.
However, some people stand to benefit by creating a budget for 2023. If you rely on credit cards or are unable to keep up with your bills, a budget can help you get your spending back on track. Or, if you’re planning a big expenditure, such as a new house or car, or you’re planning to retire or send kids to college, budgeting for the expense might be key to reaching your goal by your target date.
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