budget. It’s hard to imagine someone saying the word without some kind of plump lip or eye roll. So, why budget? Well, creating and maintaining some ways to track and manage your spending is the absolute foundation of your current and future financial well-being.
The good news? A budget doesn’t have to mean keeping track of every penny or limiting your spending on the things that are important to you. On the contrary, budgeting ensures that you are spending in your own interest.
Below you can explore why budgeting is important.
NB: Already convinced you need to budget but not sure how to go about it? Discover 14 different ways to approach monitoring and planning your income and expenses. There is a way to budget that matches your personality, values, and needs.
What is the budget?
Budgeting is the process of creating a plan for how money will be spent, saved, and managed. It involves estimating income and expenses over a specified period, usually a month, quarter, or year. (For retirement, however, you’ll want to create a budget for the 10, 20, 30, 40, or many more years that you’ll live without income from work.)
A budget is the cornerstone of financial wellness. When you are aware of and in control of your income and spending, you can prioritize what is important and set goals.
Budgeting (monitoring income and expenses) relates to financial wellness as follows:
- Diet and exercise for good health
- GPS is useful to reach your destination
- The foundation and frame of the building hold the structure
Budgeting is important for several reasons. Let’s explore X Reasons to keep track of your income and expenses.
Budget is not just what you buy. An important part of your budget is knowing how much you can set aside for savings. Keeping a budget helps you prioritize saving. Think of savings as your most important personal expense in your budget.
Because a budget helps you focus on setting aside money for savings, it will help you achieve your long-term financial goals.
Whether you’re saving for a home, financing a college for the kids, or for your own retirement, a budget helps you be accountable to those goals and enables you to measure your progress.
When you maintain and stick to a budget, you are less likely to get into debt or dig yourself into a financial hole. You know what you have to spend and are likely to stay within those limits.
Budgeting is an effective tool for managing and reducing debt. By keeping track of your income and expenses, you can identify areas where you can cut back and set aside more money to pay off debt, thus accelerating your progress towards financial freedom.
Besides preventing debt-induced stress, maintaining a budget helps you avoid unknowns that have been scientifically proven to be stressful.
Spending without a budget can be emotionally risky. You simply don’t know if you can afford everything you buy. Or, even if you are sure you can afford it today, you may not know if the expense will limit your ability to buy something else that you really want or need tomorrow.
By keeping a budget, you can eliminate uncertainty from your life and feel more confident.
A budget helps you understand where your money is going, identify any spending patterns or habits, and get a clear picture of your financial health. This awareness is essential to making informed decisions and taking control of your money.
If you are not keeping a budget, you are probably not aware of how much you are spending in different categories.
You’ll likely have thousands of budget-conscious thoughts each month. It might come to your mind when you’re flipping through the TV to cancel some of your subscriptions. Or maybe you feel some degree of regret when your organic berries rot. But fleeting thoughts don’t usually lead to concrete actions.
You’re more likely to cancel subscriptions and stop throwing unnecessary extras into your cart at the grocery store if you see their impact over the course of the month as it’s reflected in your budget.
A budget provides a clear picture of your financial situation and helps you take control of your finances. It allows you to track income and expenses, identify areas of excess or wasteful spending, and make necessary adjustments to stay within your means.
With a budget, you can prioritize your expenses based on their importance and align them with your values and priorities. It helps you differentiate between needs and wants, ensuring that basic expenses are covered before funds are allocated to discretionary items.
I was so shocked when I saw how much I was spending on dinners when I started budgeting. It really made me realize that average meals were less important to me than traveling and I changed my spending patterns.
A budget promotes informed financial decision making. When you have a budget, you can make informed choices about spending, saving, and investing. It helps you assess the potential impact of financial decisions on your overall financial well-being.
