Your Bank Balance Blind Spot
(Why budgets are better than bank balances.)
When I was in high school, my family moved to Labadie, Missouri. Our new house was near the junction of Boles Road and Highway T. It was a tricky intersection because T dipped down, dramatically, as it curved around and then climbed back up to the crest of the hill where Boles joined it.
I’ll never forget the lecture my dad gave seventeen-year-old me about how it was crucial to fully stop at the termination of Boles Road and count slowly to ten—with “Mississippis”—before attempting to turn onto T. The reason? There was a terrible blind spot.
One second, the coast looked clear. The next, a speeding car could come hurling out of the dip, up over the crest of the hill, blowing right through the area where the two roads connected. If you happened to be turning onto T in that instant, you’d be toast!
Counting to ten while keeping an eye on the entrance to the dip, as prescribed by my dad, gives you the data necessary to make an informed turn (or not!). And that’s the same thing that a budget does …
Your Bank Balance Is like That Curvy Road
If you’ve ever checked your bank app to see if you have enough cash before making a purchase, consider the following:
- Your bank may not know about your most recent purchases because some merchants take a few days to process their sales.
- Any transactions with a “pending” status may not be reflected in your balance total.
- Banks and merchants make occasional errors, which affect how much cash you actually have until the error is corrected.
- And, most importantly, your bank balance doesn’t know about your priorities (like, for example, the electric bill, set to autodraft tomorrow, that you temporarily forgot or the vacation you’d like to take next summer).
In short, if you make financial decisions based on your bank balance (instead of your budget categories), you’re operating with a blind spot. Transactions that have not yet been reflected in your balance and your true priorities are obscured—just like those cars in the dip on Highway T—and, sooner or later, they’ll come flying out of nowhere to hit your wallet.
… if you’ve spent any cash in the meantime, you could find yourself in a crunch.
Budgeting = Counting to 10
Just like counting to ten helps you safely avoid cars hiding in the dip, budgeting helps you avoid surprise expenses (which are really the worst). But, even better, budgeting helps you proactively manage your money so that you can improve your sense of stability and freedom (which is truly—hand on my heart—the best).
So, let’s say you’re nearly done with work for the day, and you’re definitely not in the mood to cook. You love a good tom kha, so you check your balance. Your bank app shows $200, more than enough for dinner, so you make plans to meet a friend for Thai. After a delicious meal, you settle up—$70—and head home.
The only problem is that you didn’t really have $200 to spend. Thanks to a delayed $80 transaction, your balance was actually just $120. On top of that, you forgot that your $130 car insurance payment is due tomorrow, and you’re out of groceries!
Payday isn’t for another week, and suddenly you’re $10 and a bag of groceries short of financial peace.
Now, with a budget, life would have played out a little differently. For starters, you wouldn’t have spent that $80 because you’d see that you need to reserve $130 for the car insurance bill. This would leave you with $70 until payday, which you’d likely allocate to your grocery category. (Although, if I’m being honest, you might sneak an $8 burrito into the mix if you really didn’t feel like cooking.)
That’s Why Your Budget > Bank Balance
Not only will consulting with your budget keep you out of cash flow predicaments, it’ll help you build the best version of your life. You could spend all of your money on delicious bowls of tom kha, or you can use a budget to prioritize some meals out and reserve some of your dollars to achieve your big-picture goals—like finally becoming debt-free, experiencing the peace of mind that comes with getting a month ahead or funding your biggest dream(s)!
Think of your budget like counting to ten before pulling out onto Highway T. It’s your glimpse into the dip, so you can see exactly what’s ahead before you decide to pull your money out of the bank—so you’ll never need to feel worry or regret about spending, again.
If you’re ready to see your full financial picture clearly, so you can safely and more strategically navigate your way to financial success, give budgeting a shot! Check out YNAB’s free, 34-day trial.