Q:

What are the consequences of not budgeting?

A:

Quick Answer

The primary risks of not budgeting include a person spending more than he or she makes, relying on debt to cover necessary expenses, and, ultimately, facing the threat of a significant financial crisis. Additionally, not budgeting can prevent someone from setting and achieving key financial goals.

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Full Answer

A budget helps compare what a person makes to what a person spends. Without a budget, there is no disciplined approach to keeping spending in line with income. Also, spending without discipline may cause someone to splurge on less important items only to find that money isn't available for more important living expenses and discretionary items. This can start a domino effect that escalates because monthly debt obligations continue to rise and create even greater demands on income.

Budgets are also important to save for medium-term goals and long-term retirement. Spending without a budget prevents someone from setting aside funds for these purposes. Thus, retirement may get delayed because of the need to continue to earn an income later in life. It is difficult to set aside emergency funds or to save up the money for a home or car without establishing a budget. Additional effects of not having a budget include the inability to build wealth over time and significant stress that results when bills and debts escalate.

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