Eight Common Reasons Why People Start a Budget

by Guest Contributor · 11 comments

How does one get from saying, I really should start to budget to Yes, I regularly keep a budget? Like many such changes and transitions, there is a catalyst that provides the necessary motivation to start budgeting. But what was is it?

The Consumer Reports Money Book says that the two most common reasons people start a budget are the birth of a child and a move to a new home. The next three catalytic events are a major medical expense, divorce, and retirement. This certainly suggests that people start budgeting in response to one of three significant events in life. Here are a few more…

Increase in Expenses

People frequently start to budget when expenses increase. When life starts to cost more money, families typically don’t know how to respond to the extra expenses. As a result, they usually now have the motivation to start budgeting. Of the reasons listed above, the new home, having a baby, and major medical expenses would all be associated with an increase in expenses.

Loss of Income

I would include retirement and divorce in the loss of income category. Also, one would expect losing a job would offer some serious motivation to start budgeting. It is also quite possible that the birth of a child may require one family member to stay home. If that is the case, a loss of an income would be combined with an increase in expenses, the ultimate double whammy.

Change in Lifestyle

When the pattern of life is interrupted, people often seek to develop new and healthier habits. Thus, they are more likely to budget when a baby is born, there is a divorce, or when someone is entering into retirement.

5 Additional Reasons Why People Start to Budget:

Start earning a paycheck for the first time. When my daughter turned three years old, we gave her a job. Each day when she got paid, she would drop a coin into one of three jars: give, save, or spend. That was her first budget. Often, there is no need to start budgeting until you have an income. (Remember the post about the four jars approach?)

Realize your debt load. After adding up all of the debt and feeling a cold chill run down their backs, many people realize it is time to stop playing around and start a budget. Hitting rock bottom financially is often when people find the motivation to start taking financial control seriously.

New beginnings. New beginnings include events like New Years, birthdays, moving to a new neighborhood, or back to school. We all want to have a clean slate. New beginnings give us a chance to start fresh. Because of this, many people decide to start budgeting when there are new beginnings.

Economic changes. When the stock market tanks, job losses increase, and there is a general nervousness in the air, people rush out to start budgeting and getting control of their spending.

In response to new information. This is the reason why my wife and I started to budget. When Dave talked about budgeting in a Dave Ramsey Total Money Makeover seminar we attended, it made sense to us. Several months before, we had experienced a change in lifestyle (I went back to school), and we were trying to find some type of equilibrium. The budget was the missing ingredient that helped us ensure that we did not take on any additional debt.

Final Note:. Far too many of these reasons are reactive instead of proactive. People wait for something to change before they will seek what is best for their finances. However, if you start to budget now, you could avoid trying to start budgeting at an already stressful time in life. Even if those situations do come, at least you are already in a good situation to make quick adjustments.

What about you? Why did you start to budget? Can you think of other reasons why people start to budget?

Editor’s Note: I can. Here are seven more reasons why you should start budgeting.

This is a guest post by Craig Ford, who blogs at Money Help for Christians where he teaches people how to budget.

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{ read the comments below or add one }

  • Witty Artist says:

    It’s useless someone tells you to start budgeting, no matter how many strong reasons they could offer you. Each of us has to find their own motivation to start a saving account. After you’ve set up your priorities things we’ll be clear: how much to spend and how much to save. I for one, got the meaning of budget since childhood. Each time I wanted something badly I used to save a little money (received as a gift, as a scholarship etc) for that. I think it’s good to start a budget as soon as you begin to earn your living.

  • Leah says:

    I’ve learned budgeting is necessary so I don’t throw away money that easlity could have been put into savings. I think back to when I didn’t have a budget, and it’s sad how much money I could have put away now. Thousands, just down the drain because of spendthrifting.

  • I’ve figured out the “start” budget part. But seeing it through all the way and staying disciplined is the part I find the most difficult. I can’t tell you how many budgets I’ve started over the years, each because of 1 of these reasons mentioned. Only to start a new one 6 months or so later.

  • Personal Finance Fleur says:

    Excellent post and great ideas… I agree with you Jonny, Budget is the best tool or shall we say a start in tracking one’s expenses. I admit I’m totally a looser in budgeting before but I really thank the help of a certain software that I used in tracking the progress of my daily savings and expenses.

  • Seo Guru says:

    Certainly those listed may prompt people to start budgeting. But If I may add one to the list, some people start budgeting when they are planning to buy something, like buying a new car, a new house or simply buying a new appliance. Great article by the way.

  • Budgets are excellent things for keeping an eye on your cash but it shouldn’t be a tool for a poverty mentality. Being wise with money is not just about saving the pennies here and there. In fact I would say that saving the pennies is counterproductive.

    Spending the time focusing on increasing your financial intelligence that will allow you to create more money is, in my opinion, a far more productive approach to being financially astute.

  • Craig Ford says:

    Tracking receipts is a good way to go. Other prefer to just jump into. One possibility is to start with recommended budget percentages and then tweak it based on your spending habits.

  • Squirrelers says:

    To me, it’s important to assess what your actual expenses are, before setting up a budget. I suggest (based on my past experience) recording all expenses for one or preferably 2 months, capturing everything. And I mean everything, down to the penny. Then, segment your expenses into different categories (home, utilities, phone, grocieries, restaurants, toys for kids, entertainment, etc). At that point, you should be able to see where you’re spending your money. You can make cuts as needed to get to the level of savings that you want, and then spend accordingly. Track again for a month, to make sure you’re on track, then move forward.

    Really, the key thing is to know your goals – where you want to be – and then organize your expenses to match your goals. That’s been my approach.

  • Lynn says:

    It’s just so daunting. *sigh* But I’d really like to go from “we’re fine” to “yeah, we’re buying a house this fall”.

    • MoneyNing says:

      I think a good way to start a budget is to just start gathering your receipts first and just adding up the totals with lose categories. Then as you get used to it, you can refine your budget tracker by adding categories and stuff.

      I know this might not give you the best history, but it beats opening up any budget tracker, get overwhelmed by the complexity and just writing the exercise off as something that you’ll never keep up with.

    • Billy says:

      What has worked for me is to “pay myself, first.”

      Every week, money is automatically withdrawn from my account and put in savings. I don’t have to think about it or do anything. Now I don’t even miss it, and when I check that account’s balance, it is a nice feeling to see how much I have.

      Once all my credit cards are paid off, that money I normally would’ve sent to the cc company will go right into savings as well.

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