Having a budget is extremely important if you want to keep up positive, constructive financial habits.
However, if you have no experience with a budget, or the benefits it can bring, you might be wonder why is budgeting important. This guide will help provide some clarity on the benefits of budgeting.
Many people have quite the negative view of budgets, seeing them as being restrictive, and preventing you from buying what you want.
However, this is not the case, budgets are not restrictive, you control them and choose how you will manage your finances through them.
In a sense budgets are just good financial management and reviewing tools. Let us talk more about what budgets are and why they are so important to financial health.
Firstly, What Is A Budget?
What is a budget? Is it restrictive? No. Budgeting itself is the process of crafting a plan on how and where you will spend your money. Spending plans are budgets and vice versa.
Creating a plan like this allows us to get an idea as to whether or not we actually have enough money behind us to do the things, and afford the things we need or want.
If we do not have enough money to do these things, this is where the whole planning process of a budget comes in handy.
You can prioritize your spending to better focus your money on the things which are of greatest importance to you.
You can set up plans to save for occasions, or pay off debts, craft emergency funds, so your back is always covered, and so on.
Why Is Budgeting Important?
So, why is doing this so important? Budgets are important, they are a financial lesson which is not understood enough.
If you want to gain better financial security, then following budgets is the only real answer you can have.
Most of us do not follow budgets as we are not experts in this, but budgets are just spending plans that consider current and future incomes and costs.
Having these on our side keeps our spending under control and helps us accumulate savings for our future. Here are some aspects that make budgeting as important as it is:
Keeps You Working Towards Long Term Goals
Budgets help you to figure out what your long term goals are and help you work towards them in a financial respect.
If you were not to do this you would really just be drifting through life aimlessly, tossing your cash left, right, and center.
How would you ever save up to buy a house, a car, or retire well? Budgets force us to think about our goals, and save, track our progress and turn our dreams into reality.
It can sting when you cannot make those pretty little purchases because it does not fit into your budget. Just remember what you are working towards.
Stops You From Spending Money You Do Not Have
So many people spend money they just… Do not have, and we owe all this to credit cards. As great as they are, they are actually something of a downfall upon banks and credit.
In fact, would you believe that the average credit card debt for a household in the US was as high as $5,525 in 2021.
Before plastic as payment, most of us knew whether we were being reasonable with our spending, and if we could pay bills at the end of the month, and have some savings, then we were good.
However, most of us use, or abuse credit cards, and we do not even realize we are working ourselves into a pit of debt.
Yet, when you stick to a budget, it is like going back to using cash again, you know how much you earn, how much you spend, and how much you should be saving.
It is not all that fun to crunch numbers, but it keeps you on track, and spending what you should.
Work Towards A Comfortable Retirement
When we spend responsibly, we follow our budgets, and do not go around dragging credit card debts with us, we do something else.
When we spend but also save, we are able to invest into our futures. Saving for the future is just as important and spending wisely now.
If we set aside money into an IRA, a 401(k), or something similar, we can build up a retirement fund, and when we are older we will thank ourselves for this happy and comfortable retirement, free of money worries.
You Are Always Prepared For An Emergency
We never think of potential emergencies when our paychecks come in, but life is always surprising, and when these surprises hit, we get injured, sick, lose our jobs, get divorced, or lose a family member, it can hit us hard in the wallet.
These emergencies also usually happen when we are in the middle of financial turmoil as well, so having an emergency fund is a great way to stop these already stressful situations from becoming even more stressful.
Budgets should include emergency funds that give us a good 3 to 6 months worth of money to cover living costs.
That being said, do not go dumping most of your paycheck into your emergency fund from the get go.
Set a plan in your budget to contribute to it on a monthly basis, setting realistic goals of what you can put into it. Even if it is only $10 per week, it builds up.
It Enlightens You About Your Spending
One of the best parts of having a budget is that it shows us what our financial habits are really like. We may realize we spend a lot of money on things we really do not need.
We might find our cable plan is actually a bit of a waste, or that we really do not need so many shoes, bags, or clothes. It brings us a new perspective on how we spend.
Helps You Sleep Easier At Night
Following budgets mean that we KNOW we can make those payments we have to. You KNOW you can pay your bills and meet deadlines.
So many of us lose sleep over being able to fight our money issues. When you have a budget, that all goes away and catching 20 winks is a lot easier.
Budget Planning & Forecasting
We all use budgets differently, some people will use apps or spreadsheets to manage budgets, others may take to writing it down.
Automated payments, and managing budgets through banking apps makes things a lot easier, but, by doing these things, it makes life easier.
However you choose to manage your budget, be it 6 months in advance, 12 months, or years, it can take a load off of your shoulders in the future.
Budgeting is one of the most imperative habits you can adopt financially, it helps you to achieve goals, and stops you from spiraling in debt, or living pay-check to pay-check.
The real question is not why should you budget, the question is why wouldn’t you? We all know that fewer money worries is the secret to a stress-free life.