When it comes to personal finance, you’ve probably heard, or been advised that you need to live on a budget. But if you’ve got your spending under control, or you believe you handle your finances, you might not see the point. So, the purpose of a budget is to do what?
The purpose of a budget would be to plan, organize, track, and improve your financial situation. To put it differently, from controlling your spending to consistently saving and investing a portion of your income, a budget helps you stay on course accountable for your long-term financial goals.
The tough sell is that budgeting is not merely a fast fix. If you begin budgeting with the attitude it will immediately solve all your financial difficulties, you’re bound for disappointment. Budgeting is tough work. It takes consistency over a long period of time.
The fantastic news is that if you dedicate yourself to a budget, the financial results you will experience are phenomenal. But if you still can’t see the purpose of a budget, here are 10 awesome motives to jump on the budgeting ministry.
The purpose of a budget: Increase Your Savings
For most people, the reason that they get into budgeting in the first place would be to boost the amount of money that they save each month and have some emergency fund. Honestly, this is true for me.
Truthfully, when you begin planning out your financial life, it is difficult not to find areas to save money. Whether you are just spending too much cash on frivolous purchases or spending more money on groceries than you need, budgeting helps you find areas to save a little additional money.
Plus, one of the staples of good budgeting, is planning out your savings and paying yourself first. In other words, rather than making a paycheck, spending money, and saving whatever financial bits are left, a budget helps you plan your finances so you can save first and get an emergency fund.
This places a greater degree of priority on saving money, which may only lead to one item: a larger savings accounts.
Budget benefit: Gain Financial health and Control
I really don’t think I have ever met an individual that enjoys feeling out of control. When it comes to financing, living even a little out of control may lead to significant problems.
Budgeting keeps everything in check and puts you in the driver’s seat of your finances.
So, rather than allowing your financial life to only happens to you, you can take the reins and guide it where you want to go. And the more disciplined you’re with your budget, the more your money will act.
The purpose of a budget: Increase Your Net Worth
In this day and age, it is more common to hear people worrying about their credit rating compared to their net worth. But if you have a budget, it will change that mindset in you.
When you begin planning, monitoring, and getting better with your cash, you will find something amazing occurs. Your net worth will start to raise.
By way of instance, if you are disciplined with your budget, it will help you control your spending, which can help you save money. In addition, if you are in debt, budgeting can help you plan a debt payoff plan, which will lower your total liabilities and improve your own net worth. Finally, budgeting will help you allocate more money to investments, which will put your money to work, and grow your net worth.
Budget benefit: Achieve Your Financial Goals Faster
In reality, we have discussed this in length in a number of different posts, and I highly suggest that you go read those after this one.
Anyhow, a part of setting financial goals, is developing a plan to achieve them. And that is where your budget will probably shine and help you to get a better life.
Allow me to explain.
If you were to set goals of saving $10,000 in the next 12 months, you are able to divide $10,000 by 12 months and get your monthly savings goal of $834. Now, along with your budget, all you have to do is plan your saving and spending to make it work. Then, all you’ve got to do is stick to the budget, and then you will be certain to meet your goal.
Heck, you might even find that your goals are somewhat too easy and that in the event that you adhere to a budget you can save $15,000 per year or more. You won’t know until you get on a budget.
The purpose of a budget: Reduce Financial Stress
Whether that means worrying about making your monthly rent payments, paying back your student loans, getting out of credit card debt, or just affording groceries, stress can be painful for you and your financial health.
The good news is, budgeting can take a great deal of the financial stresses out of your life.
Think about it, if you create a plan for your finances each month, and also know exactly what you can and can not spend your money on, you’re eliminating the majority of the unknown on your financial life.
As I mentioned previously, this can help you to feel like you are more in control, which will, in turn, decrease a lot of your financial strain.
The purpose of a budget: Get Out Of Debt Faster
Debt is a monster that feeds on your financial success. Seriously, when it comes to your net worth, debt is literally a responsibility.
However, if you are not on a budget, you may not get how much money you’re really spending on debt every month.
I know from experience.
The afternoon my wife and I got on a budget was the day we realized how much money we were paying toward debt each month, and it disturbs us. Sure we knew how much money we were paying to each individual lender, but we hadn’t ever taken the time to add it up and let it sink.
And the day we did, we vowed to get out of debt, and never return to debt back again.
Budgeting saved our financial future by opening our eyes to how much debt we were paying, but it also helped us create a road map to remove it. And honestly, and we think it’s the key to staying out of debt.
The purpose of a budget: Reduce Financial Arguments
Money fights in unions are a really real issue. When you take two individuals who’ve handled their income for their entire adult life, and then combine their finances, there’s certain to be some disagreements.
Budgeting, however, is the best method to prevent these uncomfortable financial arguments.
First of budgeting as a couple compels you to get on the exact same page, and plan your future together. When you take the time to think of a financial plan you agree on, you’re being proactive instead of reactive. Additionally, you’re teaming up rather than fighting one another.
Additionally, if one of you decides to overspend, or deviate from the plan, you can’t become angry at your partner because you participated during the budgeting process.
Budgeting in union holds you liable and keeps you focused on a goal, instead of fighting with each other.
Budget tips: Prioritize Your Finances
The more you focus on budgeting, the more you will start to place a priority on your financial goals. When you take time each day to track your expenses, reconcile your budget, and make certain that you are staying on track, it’s like a little reminder to stay focused on what really matters.
Thus, when you go shopping, you won’t only be considering how bad you want that pair of shoes, you will also be weighing that buy against your financial success. Trust me, you’re much less likely to spend money on things you don’t actually need when you have several goals compiling your priority list and spending plan.
The purpose of a budget: Identify Wasteful Spending
Ok, so this could probably go at the very top of this list, however, budgeting helps you identify all kinds of wasteful spending in your finances. And identifying (and eliminating) unsuccessful wastes is one of the most effective methods to improve your savings.
As an example, when my wife and I first started budgeting, we understood that we had been spending far too much on auto insurance. We did some shopping and found a much better speed for exactly the exact same amount of coverage. Then we decided we had been over-paying for the internet, so we called our provider and cut our monthly charge in half. We discovered we’d been paying for a couple of small app subscriptions that were just slipping under the radar each month. Not anymore, because our budget and spending plan would not allow it.
When you start budgeting, you’ll be astounded at all the waste you are able to find in your daily spending plan.
Improve Your Self-Discipline
There are no two ways about it, sticking with a budget takes self-discipline. You have to wake up daily and commit to abiding by the budget you put in place.
As a result, you will be creating your self-discipline. And also the more disciplined you become with your budget, the better the financial consequences will be.
The best part is that budgeting is a self-reinforcing process. You see, the more results you see from the budgeting, the more you will want to stay with this.
And it all starts with budgeting of income and expenses.
Budgeting Takes the Stress Out of Money Management
Which is more stressful: paying all your bills on time or moving on a shopping binge then having no idea how you will cover your credit card bills when they arrive?
How many hours of sleep have you misplaced fretting about money?
Uncertainty is trying. Knowing is not stressful in any way. When you create a smart budget, the nights of tossing and turning are over.
A budget is like using the answers to the test ahead. When a bill comes in, you already know how to pay it.
Budgeting Gets You and Your Partner on the Same Page
Ever contend with your partner about money, income, and expenses? If this is so, I am not surprised. Pros mention money as one of the top reasons for divorce.
When two people that are utilized to handling their money on their own get together, they’re bringing their own ideas about personal finance to the table. Combine their finances and there are bound to be disagreements.
Maybe your spouse wants a new car every 2 years, but you’d rather drive your present, fully paid off the car before it dies. Or maybe you’re OK with having a credit card balance and paying attention while your partner always pays their balance every month.
You likely won’t agree on everything. Working together to set a budget and stick to it focuses your attention on building a life together instead of fighting over money
Budgeting has a great deal of upside. Sure, the principal purpose may be to improve your financial life by controlling income and expenses.
In fact, the next time somebody asks me about the purpose of budgeting, I am just going to say, it is going to make your life better.
Can you stick to a budget? What is the greatest purpose it serves in your life? Make sure you comment about the budget below.