Working out a budget is one of the best things you can do for your finances, but there are some misconceptions that mean people aren’t making the most of this simple money management tool.
Here we outline some of the biggest budgeting myths, and the truth behind them.
Contents
- Myth 1 – Budgeting takes too much time
- Myth 2 – Budgeting is too hard
- Myth 3 – There’s a ‘right’ way to budget
- Myth 4 – You have to be good with numbers to make a budget
- Myth 5 – I don’t need a budget because I’m not struggling financially
- Myth 6 – Budgeting is about restricting your spending
- Myth 7 – I only need to budget if I’m saving for something
Myth 1 - Budgeting takes too much time
Many people are put off creating a budget because they think it will take too long to work out.
While making a budget can take a little bit of time and effort, a basic version should only take minutes to set up. Once done, you can review this as often as you like, and make it work for you over time.
It’s worth remembering that the best budget is one that suits you, and while some budgeting methods will ask for a detailed view of your finances, others take a basic approach and are really simple to use.
If you’re looking for some inspiration on particular budgeting methods have a look at our article 5 budgeting methods you might not have heard of.
Myth 2 - Budgeting is too hard
Basic budgeting is relatively simple. In fact, it’s now easier than ever to make a budget and stick to it with the help of various apps and online banking.
The thing that often makes budgeting feel difficult is tackling all of your finances at once, so break the process down. For example, if you’re feeling overwhelmed at the thought of creating a budget, break it down into steps like this:
- Find your total monthly income – Work out how much money you’ve got coming in after tax from any source including salary, benefits, pension and interest/investments.
- Work out what your fixed costs are – This will include any essentials that you pay for regularly, such as energy bills, rent/mortgage payments, broadband and so on. Subtract these from your total income to see what money you have left to spend.
- Outline your financial goals – Think about what you want your finances to look like. This will vary from person to person. Some might be looking to create a dedicated holiday fund, for example, while others might want to drive down debts. Outline clear and achievable goals.
- Put some of your remaining money towards your goals – Split whatever money you have left after paying your fixed costs and other everyday spending between your goals.
If you’re looking for some tools to help you to get started, then our article 20 top money-saving apps has some great options for making the most of your finances.
Myth 3 - There’s a ‘right’ way to budget
Everyone’s financial situation and preferences for managing money are different, so there’s really no specific way to budget. The right way is whatever works for you.
There are a huge range of tried and tested budgeting methods, but you can simply use these as a starting point and adapt one or several to suit you.
It can be easy to feel disheartened when you try a budgeting method and it doesn’t work for you, but you may not hit the budgeting nail on the head the first time, so don’t be afraid to pick another method and try again.
It’s likely that no budgeting method will be 100% perfect for you, and often the best budgets are the ones that evolve over time and feel intuitive to you. It’s most important to focus on what method feels right to you.
Myth 4 - You have to be good with numbers to make a budget
You don’t need to be good with figures to draw up a budget. You simply need a few basic numbers to get started.
The first thing you’ll need to do when creating your budget is to get an accurate view of how much you actually have coming in each month, so to get started, you’ll need to tot up your monthly income after tax. Next, you’ll need to work out how much you’re spending each month.
At a really basic level, you want your income and your spending to balance. So, if you subtract your spending from your income and you find you have a bit of money left over each month you might be able to move things around to support your longer term goals, such as helping children with higher education costs, or boosting your retirement savings. If, however, your outgoings are higher than the amount you have coming in each month, you’ll need to identify the areas where you might be able to reduce your spending. Learn more in our article How to make a budget and stick to it.
Myth 5 - I don’t need a budget because I’m not struggling financially
You may assume that if you’re not struggling to make ends meet, you don’t need a budget.
Of course, if you meet your monthly costs without too much trouble then you’ll be less inclined to want to spend time examining your finances, but you could be missing out on the opportunity to make your money work harder.
It’s also worth considering what you might do if you lost your job. Unfortunately, redundancy is relatively common, and financial experts recommend having at least six months of essential expenditure in savings as an “emergency fund” just in case. You can read more about this in our article How to build an emergency fund.
Myth 6 - Budgeting is about restricting your spending
Creating a budget doesn’t mean you have to stop spending money on the things you enjoy doing, whether that’s buying clothes or going out for dinner. Sustainable budgeting is more about developing an awareness of your spending habits and planning for them.
For example, if you really enjoy a takeaway coffee on your way to work each morning, you could build this cost into your budget. A good budget will help you achieve your money goals while also supporting your lifestyle.
Of course, you might find in creating a budget that you habitually overspend, and if that’s the case then you should try to find ways to cut back. Remember that reducing your spending is preferable to getting into debt.
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Myth 7 - I only need to budget if I’m saving for something
Budgeting can certainly help you achieve your financial goals such as saving to buy a property or a new car. However, it’s also really useful as a means of building good money habits.
A bit like exercising regularly or eating well, maintaining your budget is the key to developing good habits. Think of it as contributing to your financial healthy habits. Find out more about ways to develop these in our guide Seven must-have financial habits in retirement.
Bear in mind, after all, that we all have an emotional relationship with money, whether that’s positive or negative. This means that sometimes we can spend money out of habit rather than an actual need, and maintaining a budget can be useful for curbing emotional spending.
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