5 Things You Can Learn By Living On A Budget
This is a guest post by Howie Bick is the founder of The Analyst Handbook.
Living on a budget is an interesting task that can show you interesting things about what you value, and what you truly want. When you aren’t living on a budget, the purchase and spending decisions you make are a little different.
You’re able to see what you truly want or value, and what you don’t necessarily want or need as well. Things like that are interesting to see. You can determine where you can save, where you like to splurge, and the appropriate time to do each.
By understanding when you’re on a budget, that each spend or item comes with a cost, whether it be something else you wanted or another item you wanted to purchase, figuring out where you like to spend money is an interesting adventure.
What Is Living On A Budget?
Living on a budget is living on a predetermined set of money or set income you have. The budget you create acts as a framework or guideline to determine how much you can spend, what you can afford, and how much money you have available in order to pay for food, rent, drinks, or any other necessities you may have.
Don’t have a budget? I got you! Download my easy-to-use Excel Budget here or here for Google Sheets!
What You Can and Can’t Afford
An interesting task of living on a budget, is figuring out what you can and can’t afford. What you can afford is interesting, because it’s what fits inside your budget, and what you’re able to purchase or do. What you can afford shows you the type of lifestyle you can afford to live, the type of apartment or living space you can afford to have, and the different decisions that fit within your budget.
When stepping outside to what you can’t really afford, it starts to become tricky. Because that’s where you might get into trouble, or make a poor decision that can affect you. A lot of it depends on how much you’re making, the type of bills you have, the lifestyle you’re looking to live, and the funds you have available.
The Opportunity Cost
When it comes to living on a budget and having a limited number of funds to spend, opportunity cost is an interesting topic to look at as well. Opportunity cost is when you decide to do one thing, or buy one item, and have to forego a different thing. It’s the cost of another opportunity that you have to forego, because of a different item, or spending decision you made.
It works very closely with what you can and can’t afford, and provides great insight into what’s important. When you’re living on a budget, each spending decision forces you to either reevaluate a different one or forces you to adapt or change to be able to meet your other needs.
You might need to refrain from going on that trip, or making that investment because you decided to make different purchase decisions. Ultimately you have a limited number of funds when you’re on a budget, and spending on X, might force you to rethink or reevaluate Y. Whether it’s your apartment, a vacation, a gift, or any other spending decision when you’re on a budget, each one has the potential to affect a different one, and make you revaluate.
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What You Need vs. What You Want
Another interesting thing you can learn from living on a budget is figuring out what you need vs. what you want. When it comes to living on a budget, this topic can be incredibly interesting to look at and can provide you with some very interesting insights.
What you need, is ultimately the things you need to live. Say foot, water, a place to live, air, and any other necessities as well. These are the things that unfortunately we can’t live without, and need in order to continue moving forward.
Now what you want, are the things that you’d like to have, or the luxuries that you can afford when living on a budget isn’t reality. Once you’re on a budget and have to figure out what you can afford, then you’re able to start to see what is a need versus what is a want.
Wants are things that we’d like to have, or the things we want to get, but unfortunately don’t necessarily need them to live. When you aren’t on a budget, these things become very commonplace. They can be purchases you make every day or things that you don’t think twice about spending on.
Now if you’re on a budget, these things are often the first to go or the first to be eliminated from the spending decisions you make. While these luxuries, items, or goods are things we might enjoy or like to have, they aren’t necessarily things we need.
It’s interesting when you take a look at the things in your life, and the spending decisions you’ve made, to see what’s a need, versus what’s a want, and it’s something that when you’re on a budget, forces you to reevaluate.
What Something Is Really Worth To You
Another interesting thing you might learn from living on a budget is what are certain things really worth to you. What we mean here is, what are the things that you truly value, and what are the things you don’t. While you may think we’ve covered this above, we really haven’t.
What we’re talking about here are the things you decide to splurge on, or are willing to pay the extra money for, or are willing to go the extra mile for. It may be for a nice haircut, nice food, or nice gadgets, but there are certain things that when you’re on a budget, you’re able to see what they’re truly worth to you.
The things that you truly value, or are willing to pay a premium for are another interesting thing you can learn. You can see which brands produce products that you feel deliver substantial value. You can see which purchases really make a difference in your life, versus the ones that don’t. You’re able to see where you’re able to extract more value from a particular purchase, in your opinion, from the cost it takes to make it.
Managing Your Money
Another interesting skill and thing you can learn while living on a budget is how to properly manage your money. For everyone, including us, when we get money into our account, we all get a bit giddy and excited that we’ve been paid. But getting paid and money into your account is only one half of the equation, the other half is how you spend it.
Managing your money is an interesting task to do. One that depends on the bills you have to pay, the costs of your lifestyle, and how much you need to live on. Figuring out how much you’re looking to save, how much you’re looking to spend, and how much is already spent is an interesting part of living on a budget.
A budget can teach you how to properly manage your money, and to watch each dollar that you spend. You might even think of it as becoming your own financial analyst, trying to evaluate if a certain decision might yield back for money in the future, or if the money is better spent staying in your pocket. The way each person manages their money is ultimately up to them, and for them to decide.
A budget can be a great way for you to learn how you like to do it, and what you feel you’d like to do with it.
Where Do We Go From Here?
Living on a budget can teach you a variety of different things. It can show you what you can and can’t afford. The different spending decisions that you’re able to make while continuing to move forward, and the life you want to live. It can show you how each spending decision you make also comes with its own opportunity cost.
How one spending decision might make you reevaluate another one, or eliminate some of your spending money. It can show you what you really need versus what you really want. Learning the difference between a need and a want can be something that saves you a lot of money down the road, and discourages you from making some poor spending decisions.
You’re also able to see the things you really value, or that you feel are really worth spending for. Through seeing what really makes a difference, or produces real value for you, you can decide which purchases are worth making, and which aren’t. You’re also able to learn how you want to manage your money.
The type of spending, investing, or saving decisions you want to make, and which you feel are the best for you. It’s tough to sometimes fight a sensation or an urge once you get paid, and make the money, but it might be the best decision for you and the life you want to live. All in all, living on a budget has the potential to teach you lots of great things, and make you a more savvy spender, investor, and saver as well.
More Ways To Save:
Here at Freedom In A Budget, I am all about saving money! Here are some of the EASY ways that I save money:
• Lively: Get started with an HSA today, Lively helps people prepare for tomorrow by making smart decisions about finances and healthcare today.
• Fetch Rewards is a free grocery savings app that rewards you just for snapping pictures of your receipts. That’s really it. Free gift cards on groceries on thousands of products every day, no matter where you get your groceries. Just scan your receipts and get gift cards from places like Starbucks, Target, Ulta, Applebees. Use code QHKBH to earn 2,000 points ($2)!
• Hulu: Discover and watch movies, shows, Hulu Originals, past seasons, current episodes, sports, live news, and more with Hulu. Stream TV shows your way. Try for FREE for 1 month!
• Rakuten/Ebates: Rakuten is my to go way to earn Cash Back from over 2,500 stores like Macy’s, Amazon, Sephora, Walmart and much more. Join Rakuten today for free, and you’ll get a $10 Cash Bonus to get you started! Every three months, you’ll get a Big Fat Check in the mail or a PayPal payment just for shopping.
• CIT Bank offers high-yield savings accounts that provide a safe, secure way to grow your savings.
• M1 Finance is an easy to use brokerage platform that allows you to invest in Fractional Shares and auto reinvest!
• Webull Get 2 Free Stocks on WeBull when you deposit $100 (Valued up to $1400).
• Budget Templates: Excel budget templates with pre-populated categories and formulas to keep you on track with hitting your financial goals.
Howie Bick is the founder of The Analyst Handbook. The Analyst Handbook is a collection of 16 guides created to help current and aspiring Analysts advance their careers. Prior to founding The Analyst Handbook, Howie was a financial analyst.
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