Everyone needs a budget. It doesn’t matter how great you are with your money, or how poor your money skills are, you need a budget. Although budgets can be a very tedious task, it is important to update your budget at least monthly, as this follows typical billing cycles. Budgets come in various forms and technology makes it easier to budget than ever before. There are countless budgeting tools available for free. A few examples are Mint, Personal Capital, Excel Spreadsheets, or even a simple notebook. Below I’m sharing a few of the top reasons for budgeting.
- Helps you reach your goals (whether they are financial or not)
- As discussed in my first blog post, it is important to set financial goals. In order to achieve these goals, you must budget to understand how to allocate your money for different purposes. If you want to go on vacation 8 months from now, you should set money aside each month to lessen the burden in the month you actually take that vacation. Budgets allow you to easily see where your money is going and how much you can put aside for various things.
- Ensures you are not spending more than you are making
- This is the very thing that gets people into debt. Budgets allow you to compare your income (how much money you are making) to your expenses (how much money you are spending). If your expenses exceed your income, you are spending too much. In order to fund this excess in spending, people typically put things on credit cards and pay them back over time. You should try your best to avoid doing this and the best way to do this is by utilizing a budget.
- Helps you track your spending habits
- Do you ever wonder where your money is going? Sure, you can wait until your year-end statement comes that gives you a break out of how much you spent in each spending category, but by then it is usually too late to make changes. By managing your budget monthly, you can see exactly how much you are spending and on what. If you decide you do not want to spend more than $200 a month on going out to eat, using a budget allows you to compare what you are actually spending to that number to see if you are sticking to it.
- Shows where you can cut costs
- Budgeting allows you to see what unnecessary costs you have each month. Are you paying for a gym membership, but not using it? Are you going out to eat a lot, but also spending a lot on groceries? Do you spend over $100 in coffee a month without even realizing it? Visualizing your spending allows you to see your spending habits and determine where you can save money.
- Prepares you for the unexpected
- How many times have you had an expense come completely out of the blue? For example, a flat tire, boiler breaks at home, your pet gets sick, etc. These all generate costs that are unplanned for. Having a budget allows you to set aside money for an “emergency fund” or helps you determine if you could even afford an unexpected expense.
- Gives you peace of mind
- Wouldn’t you like to see how much money you are spending a month; what months your expenses trend higher due to birthdays or holidays; where a majority of your money goes each month? A budget is the best way to do this and it will make you feel much more comfortable financially.
- Enables you to stay out of or pay off debt
- As mentioned above, you do not want to be spending more than you are making because, in most cases, the excess spending is funded by debt. Budgeting allows you to be proactive. It also helps you figure out how much money you can put towards your debt to help you pay it off quicker. You may not realize where you have extra money or where you can cut expenses in order to eliminate your debt faster.
- Helps you plan
- A budget is essential to help you plan for anything and everything. Whether you are getting married, having a baby, going on vacation, want to splurge on a specific item, buying a house, or saving for retirement, a budget will help make sure you have the money you need and if not, it will help you determine how you can get there.
For anyone interested in the budget template that I use for monthly budgeting: Click Here to Download My Personal Monthly Budget
Can you think of any other reasons for why you should create and maintain a budget?