Budget – Why

This is probably the first thing you must do at any point in your life. It is also possible that you are already doing it in your head without realizing it.

A public company can lose money every year but can still be worth billions (http://finance.yahoo.com/quote/W?p=W) .Unfortunately, our personal net worth is not valued like a company’s net worth. You need a budget to ensure your net worth does not go negative. That is a general wisdom of budgeting. But I also believe it serves another purpose. It is also important to make sure two people with different outlooks in life can still have a good personal finance life without getting into arguments. You agree on budget and stick to it. Don’t question other on how that budget is spent.

I do not believe in latte factor as popularized by David Bach. The basic premise is that small amounts of money compounded over decades grows into a large amount of money. That is just baloney. By that premise you should just be homeless and and not eat and you will die a billionaire. He was using Starbucks latte as an example. If going to Starbucks makes you happy, do it. But stick to the budget. For some people, a $100 pair of jeans makes them happy. If that’s the case, brown bag your lunch and eat rice and beans for dinner. But stick to your budget. There is no need to question or argue if that was the right purchase decision.

At the end of the day, there is a fixed amount to spend and once you spend it, you are done. Easy.