The Importance of Budgeting
Budgeting is one of the best things you can do to improve your financial situation.
If you’ve never budgeted your money or you think your finances are in pretty good shape, you might question the importance of having a budget. Budgeting isn’t just for people who are struggling financially. No matter what your financial situation looks like, good or bad, everyone can benefit from having a budget.
It’s not that hard, it doesn’t take that long, and the impact is immediate.
11 Reasons Budgeting Is Important
Living on a budget is one important principle of good money management. Budgeting is something that anyone can do to make their financial lives better.
Following a budget will…
1. Put You in Control
Having a wallet full of maxed-out credit cards, having no savings, and not being sure if you can make rent is stressful and scary.
You can’t just ignore financial problems and hope they go away. You have to take control of your money rather than letting it control you. The first step in doing that is building a budget.
If you’re not tracking your spending and budgeting your money, you’re probably wasting more money than you realize. Creating a monthly budget will help you get your priorities in order, make sure you live within your means, and get you back in control.
2. Shed Light on Your Spending
Ever felt like you don’t know where your money goes? I have. It’s unsettling and frustrating.
I knew I had all the money to pay my bills. So why did I feel broke most of the time?
If the end of the month arrives and you wonder where all your money went, it’s time to start a budget. There are several different budgeting methods you can use to create a budget and get a handle on your finances. Some take more work than others, so pick one that suits you and get to work on a budget.
Once you start budgeting your money, you’ll know:
- Exactly how much money you have coming in
- How much you need to cover your bills
- The amount you can afford to spend at your discretion
- How much you can put toward your savings and other goals
With all that information available, you can plan your future, save money, and track your progress.
3. Help You Prepare for Emergencies
Life is full of surprises. Many of those surprises are expensive.
In the past few years, we were blindsided by all sorts of emergency expenses. We went through a job loss, a significant unplanned home repair that our insurance wouldn’t cover, and elderly care expenses for an aging relative. We’ve found ourselves stuck on the side of the road thanks to an unseen pothole. We had to take one of our dogs to the vet in the middle of the night.
These things cost money. You might not have the money you need just lying around when an emergency hits. You don’t want to handle them by taking out a loan or using a credit card.
If you’re not prepared, unexpected events can derail your finances and cause all kinds of stress. That’s why everyone needs an emergency fund.
Your budget should include room for establishing an emergency fund with at least three to six months of living expenses available. Your emergency fund will give you some peace of mind and prevent you from going into debt in the event of a crisis.
4. Get You Out and Keep You Out of Debt
Spending money you don’t have by running up credit card balances is a sure path to financial ruin.
If you’re just making the minimum payments, you’re wasting way too much money on interest. If you’re ever late on your payments, the harsh late fees alone can set your payoff date back. If you miss a payment, you can count the card issuer raising your interest rate even higher and your credit score taking a hit.
If you’re not tracking your expenses and budgeting, plastic makes it too easy to overspend. You might not even realize how much trouble you’re in until the bills show up and you’re drowning in a sea of high-interest debt.
If you build and follow your budget, you won’t end up in this nightmare situation. You’ll know what you can and can’t afford. You can use your budget to incorporate saving for your wants rather than maxing out your cards and regretting it when the bills arrive.
If you’re already in debt, a budget will help you get out of debt faster. As you build your budget, look for things you can change or eliminate. Use any money you free up to put toward your student loans, credit cards, or other debt payments.
5. Help You Meet Your Goals
No matter what your financial goals are, a budget is your roadmap for achieving them. You might want to go from renting a home to owning one, aggressively save money for retirement, or start saving for college tuition. Maybe you want to travel more, cover a major expense in cash rather than on credit, or have the Christmas you’ve always wanted.
When you decide on a goal, you create a category for it in your budget. You funnel money toward it every month like you would any other expense. When you reach your goal, you can use the money you were putting toward the old goal to reach a new goal.
With a budget in place, the way you spend your money will match up with your financial goals. When you stick to your budget, your money will work for you even while you sleep. As long as you have realistic goals, you’ll reach your targets over time.
6. Help You Cut Expenses
Once you figure out where your monthly income goes, it’s much easier to find ways to lower your expenses. You’ll probably identify plenty of things to stop buying to save money.
When we finally committed to creating and living on a budget and started reviewing our monthly expenses, the amounts we were spending on certain types of expenses shocked us. We were quickly able to decrease spending once we saw where our money went.
We saved $115 a month by cutting out cable TV entirely. We were paying for hundreds of channels, most of which we never watched. Between Netflix and Amazon Prime Video, we don’t feel deprived and we don’t spend anywhere near what we used to spend a month for entertainment.
We got our food spending under control. Groceries and takeout were consuming an alarming percentage of our monthly spending. As a result, we got more strategic about our food spending and our grocery budget. Now we buy mostly sale items, use coupons, and cook at home a lot more.
There were also some bad daily spending habits we identified and cut out. A few dollars here and there doesn’t seem like much, but that sort of spending over time adds up.
We got rid the types of unnecessary expenses you might not think much about. Buying snacks and drinks at convenience stores, paying late fees or ATM fees, and purchasing lottery tickets, were adding up to too much.
When you set up your budget, you’ll find things you’re spending money on that you don’t need, don’t use, or don’t want anymore. Your budget will probably reveal some discretionary spending you could do without. Eliminate these things from your budget.
Creating a budget forces you to examine your spending and establish better financial habits. You might discover like we did, that you spend too much money on things you don’t need.
A budget will help you keep your spending in check, help you get rid of unnecessary spending, and allow you to put the extra money you free up toward one of your long-term or short-term goals.
7. Relieve Financial Stress
How many nights have you spent tossing and turning because you were worried about how you were going to pay the bills? I have spent more than a few sleepless nights wondering how I was going to get out of the mess I was in.
Financial stress can affect your physical and emotional well-being. Insomnia, depression, anxiety, relationship problems, anxiety, and weight gain or loss are all very real side effects of the stress that comes from money problems.
You might think you’ll feel better if you just avoid calls from creditors and ignore your billing statements. But denial and avoidance will only make things worse.
You need to face your financial problems head-on. You need a plan to help you take back control, get your finances on track, and move forward without the stress. Your budget is that plan.
When you budget your money, you’ll rest easier. Your situation might not be that great for now, but you’re regaining control and no longer overwhelmed.
You have a spending plan so you know how much you have coming in and where it goes. You can go to bed knowing that you have the money to pay your bills on time, you’re not overspending, and you’re working your way toward a better financial future.
8. Strengthen Your Marriage
My husband and I never really fought about money. That’s a good thing because studies have shown that arguing about money is one of the leading predictors of divorce. According to a researcher at Kansas State University, financial arguments are the top predictor of divorce by far.
Our problem was that we both had the same hands-off attitude toward managing money. Neither of us tracked spending or set financial goals.
We just assumed those things would work themselves out. But they never do.
The universe delivered a couple of very swift, very hard kicks we didn’t see coming, like forcing us to live on one income unexpectedly. We realized planning our financial future was not something we could ignore.
Tracking our expenses and starting a budget were the first steps we took.
By working together and creating a budget you both can live with, you get on the same page. We started making smarter decisions together, which brought us closer.
Setting a budget gives you a simple plan which predetermines how you spend your money. There’s really not much left to fight about once the budget is in place.
You can talk about money without tension. You and your partner can then build the life you both want as a team without arguing over money.
9. Build a Saving Habit
When you’re not budgeting, it’s hard to prioritize saving and investing. Without a budget, you might completely overlook putting money aside and spend down to zero every time you get a paycheck.
Or you might figure you’ll save whatever cash you have left at the end of the month. But the amount you have left at the end of the month varies. Some months there might not be anything left at all.
When you have a budget, you can make sure you pay yourself first. You’ll create a budget category for savings and treat it like a bill. Every time you get paid, you’ll put money toward your savings.
It doesn’t matter if you save 10%, 20%, or a fixed dollar amount. The important thing is to consistently save a portion of your income. Budgeting ensures that you do that.
10. Allow You to Retire Comfortably
One of my best friends growing up had a grandfather who went to work at four o’clock in the morning six days a week well into his eighties. Her paw-paw started a wholesale produce business in his twenties and worked in it for nearly sixty years.
He could’ve retired in his late forties after his kids left home and started families of their own. He went to the warehouse every day because he loved it.
It was his life’s work and part of his identity. Later in life, it gave him a renewed sense of purpose.
As much as I love my job, I have no desire to do that. I don’t know anyone who does.
At some point, my husband and I both fully intend to retire. If retirement is one of your long-term goals, you need a map to get there.
Make sure you include investment contributions in your budget. With a budget, you can set aside a percentage of your income to contribute to your retirement accounts every month.
Treat your retirement fund like any other necessary recurring expense. Your budget will keep you on track to a happier retirement.
11. Improve Your Overall Quality of Life
Imagine a life where you don’t stress over money, all your bills are paid on time, and when you buy something you buy it without guilt or worry. You rest easy every night knowing you’re making progress toward your financial goals.
That’s what life is like when you have a roadmap and you follow it. Your budget is the roadmap to financial stability.
The Value of Budgeting
Budgeting puts you on the path to solving many of life’s financial difficulties. It doesn’t matter which budgeting technique you use, as long as you have a realistic budget you can follow. You can use a pen and paper, a spreadsheet, or a budgeting app.
Budgeting isn’t just for people who are struggling financially. Budgeting can help you reach your financial goals, get you out of debt, prevent you from fighting with your partner about money, prepare you for unexpected expenses, and more. If you’re not currently budgeting your money, today is the perfect day to start a budget.
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