Reasons Why Budgeting Is Important
Most consumers would agree, in principle, about the importance of budgeting. However, many only view a budget as a way to match their income and expenses. And although a budget can certainly accomplish this, there are many other reasons why budgeting is necessary.
In this article, I cover 20 reasons you should have a budget. And even if you already have one, you might discover new ways of how a budget can benefit you.
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20 Reasons for a Budget
Here are the top 20 reasons why budgeting is necessary:
#1. Having a budget makes it easier for you to save money
Many people make the mistake of only saving money if they have any left at the end of the month. And other people forget unless something or someone reminds them. By adding a savings plan to your budget, you can budget for it in advance.
#2. Helps you differentiate between needs and wants
A budget helps you to differentiate between needs and wants – needs are essential items, and wants are non-essential items. This way, you can find a balance between things that are important and things that are nice to have.
#3. Deters impulse buying
Impulse buying is when you buy something on the spur of the moment without first thinking it through. Having a budget discourages this type of behavior and prevents remorse.
In addition, the 30-day rule (often called the 30-day savings rule) might also assist you. The rule is that before you make an impulse purchase, wait 30 days.
#4. Helps you plan for unexpected emergencies
We all need money from time to time for unexpected emergencies. By including an emergency fund in your budget, you can save money every month for emergencies.
#5. Helps you plan how to get the things you want
You do not have to deny yourself a luxury item if you plan and include it in your budget. And if it is expensive, set aside money for it every month until you can afford it. Delayed gratification can be just as sweet as instant gratification, if not more.
#6. Gives you time to think about what you want
Having to save up for expensive items gives you time to think if you want it. You may find that by the time you have the money for it, you would rather spend it on something else. Or, you may decide to save or invest the money instead.
#7. A budget shows you where your money is going
Ever wondered where all your money went or why it does not last very long? With a budget, you can monitor your expenses. It can also reveal where you may be wasting money.
#8. Do not get into trouble for forgetting to pay a bill
Having a budget can help you monitor when bills are due for payment.
#9. Flexible money management
Budgets are not cast in stone. They allow you to manage your money and give you the flexibility to do so. If necessary, increase or decrease the amounts allocated to certain budget items during the month.
#10. Handy to have when you need to borrow money
Whether you want to apply for car finance or a mortgage, your budget can support your application. It shows how you manage your finances and if you can afford your monthly payments.
It also helps you to establish beforehand how much debt you can take on.
#11. Customizable to match your unique needs
It doesn’t matter if you’re a young married couple, single, or divorced with children. You can create a budget that’s right for you.
#12. Puts you in control of your finances
If you are not controlling your spending habits, you are like a ship without an anchor. It can be very stressful. Having a budget allows you to take charge.
#13. Supports both short-term and long-term goals
A budget doesn’t only have to focus on a single month. It can and should also support your short-term and long-term goals.
Your goals, for example, might include saving for a vacation, buying a car, and starting a business.
#14. Gives an overview of how well you’re doing
A budget doesn’t only show how much you’ve spent on food this month. It also reflects how much you earn, save, invest, and pay toward debt.
#15. Helps you reassess/reduce your expenses
A budget makes you reassess your expenses every month. Not only for non-essential items but also for essential items. For example, it makes you think about questions such as: “Can’t I get cheaper car insurance elsewhere?”
#16. Get “buy-in” from your partner and household
Many relationships end due to money-related issues.
Arguments about money are never pleasant. If you discuss your budget with your spouse/partner or people in your household, you can all be on the same team.
#17. Helps you think twice about credit card debt
Swiping your credit card is easy. But paying it in full every month is often another story. Credit cards can quickly turn into a debt trap. If you have a budget, it’s easier to resist just using your credit card to buy what you want.
If you are struggling to pay off debt, have a look at the following articles:
#18. A budget is an early warning system
A budget can act as an early warning system that you need to cut down on some expenses if you want to meet your financial obligations. Without a budget, you run the risk of running out of money before your next paycheck.
#19. Sleep better at night
Lying awake at night, and worrying about your finances, is a waste of time. Worrying about something is not the way to solve a problem – or else, we could all lie awake every night, and it would be gone when the sun rises.
A budget can give you peace of mind that you have not forgotten anything important and have sufficient funds to cover your needs. And if you don’t have enough money for everything, you can prioritize expenses in order of importance and find ways to make extra money.
#20. Facilitates a happier retirement
Time waits for nobody. What might seem like a lifetime to accumulate enough money for your retirement often passes in a blink of an eye.
Many people cannot afford to retire because they did not save or invest enough beforehand. And many others have to accept a significant drop in their standard of living after retiring.
A budget can help you put more money aside for retirement by prioritizing what matters the most.
That's a Wrap
xUSD advocates that personal finance requires a balanced approach to making and saving money, investing, and paying off debt.
Budgeting helps you to link all of these personal finance areas together in one place. It doesn’t only give you a good overview of them but also assists you in managing them.
By creating a budget, you are taking an important step toward managing your finances. It will help you eliminate unnecessary spending, reach your goals faster, and build better spending habits. And it keeps you accountable.
Let me know in the comments which of the reasons you need a budget you found the most useful. Or let me know why you have a budget and how it has helped your finances.