You’ve probably heard the term “budget” before. It’s something that people talk about, but not a lot of people do it for themselves. Well, now is your chance to find out what all the fuss is about!
Budgeting is one of the most important aspects of your personal finances. It helps you to track what you have spent, as well as plan for future expenses. Without budgeting, it can be difficult to know where all of your money is going.
In this post, we will discuss 15 reasons why budgeting is important and provide you with all of the benefits and advantages that come from having one.
What Is Budgeting?
A budget is an amazing way to keep track of where all your money goes.
It is a breakdown of how much you earn, how much you spend, and more importantly where you spend your money.
It gives you a great overview of your finances to help you make the best financial moves.
Once you have that information at hand, then you can make plans accordingly for the future.
Why Is Budgeting and Saving Important?
1. Helps You Take Control
Do you feel sometimes that your finances are completely out of control?
It is the beginning of the month, with all of the bills rolling in, yet you don’t know where all of your money went and are desperately waiting for that next paycheck.
It’s time to take the control back over your finances.
It is difficult to have control over your money without a budget. You don’t know where your money is going and how much you’re actually spending (on things you don’t need)!
While you might have a general idea, you will be surprised at the actual numbers and your spending habits.
By starting a budget, you are able to track your finances very closely and more easily determine what expenses are necessary.
2. Shows Your Spending Habits
Once you have your budget, take a close look at your spending habits.
More than likely, you will start seeing patterns of money being spent on needless things.
Are you spending hundreds of dollars on eating out?
Make a list of wants and needs and categorize the things you spend money on into those two sections.
Does most of your spending disappear into the wants or the needs category?
It is up to you to determine your habits and create better financial habits for the future.
3. Gets You Out of Debt
Debt can become a crippling weight on your shoulders that can feel impossible to overcome.
The good news it is not impossible with the right strategy and some hard work.
Even getting a college education can put people into an immense amount of debt.
That is on top of buying a house, a car and any other thing that you buy on credit.
Many people are plagued by debt but with a budget you can overcome it.
Use your budget to cut your expenses and put more of that money towards paying off debt.
4. Keeps You on Track for the Future
It is important to budget now so you can plan for a better future.
Your money has the power to compound over time. The earlier you start, the more you will have in the future.
By budgeting, you can save more of your money, which will result in a better future financial life.
What are your future financial goals?
Do you want to retire with a million dollars? Or do you want to have a certain amount invested?
Whatever your future goals may be, they start with taking control of your money.
5. Prepares You for Emergencies
Emergencies can set back a person by a lot especially if you live paycheck to paycheck.
Emergencies happen, and the best way to prepare for them is to budget a certain amount of money into your emergency fund.
Once you build up an emergency savings account, make sure to always build it back up if you use up some of the funds.
Having this savings account will help you to cover these unexpected expenses, not go into more debt trying to cover those expenses, and not stress so much when something does come up.
6. Eliminates Fluctuations in Income
Do you have a fluctuating income?
If you are a freelancer or contractor and your income highly depends on the amount of work you do and the amount of work available, then your income can vary greatly from month to month.
To avoid not having enough money a certain month to cover all your bills, a budget is essential.
With a budget, you can put aside money on the higher earning months and be completely stress free when your lower earning months come around.
7. Plans Ahead for Short Term and Long-Term Goals
Are you wanting to make a big purchase or maybe you want to go on a long-awaited and well-deserved vacation?
Plan for it ahead of time.
Create a plan that will help you set money aside for that purchase.
That way you don’t need to buy it on credit and go into debt. There is no better feeling than buying something outright with cash.
Once you have enough money in your separate savings account for your planned purchase, you can go ahead and make that plan come true.
This is a good mindset to have for both short term goals and long-term goals.
8. Keeps Your Money Organized
There are so many things to think of when it comes to personal finance.
There are mortgage payments, car payments, credit card payments and so many other kinds of payments that sometimes it can be overwhelming and slip through our fingers.
A budget comes in handy to keep it all in one place and keep it all organized.
Need to find something financial related?
You know where to find it!
A payment is coming up?
You didn’t forget about it because it is written out in your budget so you don’t need to waste your money on late fees.
Reference your budget monthly or even weekly to make sure everything is up to date and organized.
It is easier to keep a budget organized after you have created one than to keep trying to fix things once they get out of control.
9. Saves Money
A budget after all, is often times used to save more money.
Saving more money each month will start to add up and you will no longer feel like your finances are out of control.
Saving more money can you help you pay off your debt faster, have a sizable amount of cash in the bank or in investments and feel better about your money overall.
Saving money can even become addicting. Once you see the numbers grow, you will want to save even more, and a budget will become, dare we say fun?
10. Gives You Peace of Mind and Reduces Stress
Let’s be honest. Every single person has at a certain point worried about money, or the lack there of.
A budget can help you create peace of mind and know that your finances are under control.
You have an emergency fund, you are able to pay your bills every month, and your savings are adding up.
There is no better feeling than knowing you are making the best money moves.
Living a budgeting life is so much better than living a stressful life.
11. Builds Healthy Money Habits
Budgeting is an essential part of a healthy financial life.
You can’t fix a problem if you don’t first figure out what the problem is.
A budget checks your spending and lets you know if you are not handling your money the best way possible.
Once you start your budget, you will start building good money habits, that if you stick to long enough, will become good money habits for life.
Many of us don’t grow up having healthy money habits, but with a little bit of work and practice, we can relearn how to handle our money.
A budget won’t let you get into debt and will save you more money, which in the long run makes for the best
12. Lets You Do What You Love
When you have your money under control, you have more freedom to do what you love.
A budget lets you have enough money to purchase splurges every now and then, do fun things you like to do, or even travel the world.
Because you have budgeted well and kept your money under control, you are in a better financial place to allow yourself simple luxuries and spoil yourself with the things you love.
Despite you having the freedom to that, your money still stays under control with a budget and you stay ahead of the game.
13. Allows You to Retire Well Off
Don’t wait until you are older to start budgeting and saving for retirement.
It is best to start young and plan for your retirement in your budget.
The money you save, put away towards your savings and investment which will give you a nice cushion once you retire.
Many, work for years and find themselves without a penny to their name once they are ready to retire.
However, at that point there is little you can do to make a big impact on your finances.
That’s why it is better to start as soon as you possibly can and have the small steps add up over the years.
14. Helps You to See the Whole Picture
You may have an idea of where your money is going in your everyday life, but only sitting down and looking at your finances will help you see the whole picture.
Are you truly ahead in your finances? Or do they need work?
Budgeting will show you the little details and the things you need to become better with your money.
15. Primes You to Help Others
Getting your financial life under control feels really good.
But it can feel even better to help another struggling person with their financial life as well.
Helping someone financially is a good move. Teaching them how to create a good financial life for themselves is even better.
Like they say, give a man a fish, you feed him for a day. If you teach a man to fish, you feed him for a lifetime.
Likewise, once you gain the knowledge of getting your finances under control, you will have the knowledge to help someone else do the same.
Disadvantages of Budgeting
While the benefits of budgeting are overwhelming there are some disadvantages of budgeting too.
If your income fluctuates it can be difficult to maintain a budget.
It can be difficult to balance monthly expenses when you don’t have a reliable source of income, as well as when the amount of money you receive varies from month to month.
This can make keeping a budget seem impossible but there are ways to still make the best of it.
Take your lowest monthly income amount and have that be your starting point. If after a certain amount of time your income steadily increases, then adjust accordingly.
Budgeting can be time consuming
Yes, budgeting can be a time-consuming task, but it is worth it.
It takes much more than just an hour or two to create and maintain a budget, but in the end, you’ll have less debt, more money in your bank account, and more freedom!
A budget may feel restricting
Don’t look at a budget as restricting yourself from all of the good things in life.
Rather, look at it as a big step towards financial freedom.
You don’t even have to give up your favorite things. Just find ways to live frugally and enjoy the things you love for less.
Yes, you have to spend less in some areas, but there are many alternatives to your favorites that are just as good yet at a fraction of the cost.
Spending too much time creating a budget and not enough budgeting
Are you one of those people that gets excited, creates a plan, and then has a hard time following through?
Don’t let that happen with a budget.
Creating a budget is important. Sticking to a budget is even more important.
A monthly budget will help you create financial stability from which you can build upon in the future. What kind of benefits do you think come with having a personal finance plan?