The benefits of budgeting are endless. From helping you save money to paying off debts, you’ll find the importance of a budget. But there’s more to that than meets the eyes.
So, why is budgeting important?
It’s important because it’s that one free, effective tool to help you manage your money.
But here’s the reality:
Budgeting can be challenging.
I hear you. Getting a money plan and following it to a tee isn’t a walk in the part. I’ve been in that situation before. Trust me when I say that it’s not for the faint of heart.
When you plan your money out, you will see many benefits of budgeting (i.e. helping you save money effectively).
Whether you have a set fund for monthly bills or reserve eating out for specific times of the month, planning out your money and learning how to make a budget will allow you to see money benefits simply from doing so.
If you’re ready:
What are the benefits of reading this article?
If you read the article from start to end without skipping on any step, then, you'll know the important things like:
The Basics of Budgeting
When creating a money plan, it is important to learn the basics of it. This includes answering the questions like “What is the goal of budgeting?”, “What is a budget?”, etc.
Before you learn those budgeting hacks, tips and tricks to manage your money well, etc., you need to answer the basics – everything starts from there.
Here are some of the questions and answers you need to be aware of:
1. What is the difference between budget and budgeting?
The key difference between budget and budgeting is that a budget simply lays out a plan for what you want to achieve.
On the other hand, budgeting is a process to help you come up with a budget.
That’s really it.
2. What is the purpose of budgeting?
The purpose of a budget is to help you reach your goal. It’s your roadmap to get to your destination.
Think of it as a plan. You would want to map out what you need to do in order to achieve what you desire in life.
Here are some of the purposes of budgeting:
- Take back control of your finances. You want to control your finances and not the other way around. This can be done when you plan out your money. When you plan it out, you’re empowering yourself to do better and take charge of your money situation head-on.
- Enable you to address unexpected costs. Unfortunately, we all experience unexpected costs like medical emergencies. When you plan out your finances and have saved money, you won’t have to worry as to where you need to get the money from to address these issues.
- Give yourself and your loved ones transparency. When you have everything listed down, you and your loved ones can see on writing what’s coming in and what’s going out. In a sense, you’re being transparent on your family finances.
3. How can budgeting improve your life?
Aside from the purposes mentioned above (that can also serve as ways to improve your life), there are other things by which planning out your finances can help improve your life.
Here are some of them:
- Helps you spot red areas. You’d be able to know where you are spending a lot, which can help you refocus and make necessary adjustments.
- Helps you sleep at night. When you have a plan in place and know where things are, you can sleep well at night knowing what your situation is, not worrying about what you need to do to make ends meet, etc. That’s because you planned out everything.
- Helps you stay out of debt. Your plan can help you figure out areas you can get from (i.e., save money and use it to pay your debt). It can help you get out of debt (when done effectively).
- Helps you reveal wastes. Having a budget can definitely show you expenses that are simply wastes – ones that can be used for better use.
Believe it or not:
Planning out your finances provides more benefits (e.g., the benefits of saving money) than drawbacks.
4. Why is budgeting important?
Since budgeting is a way to create a spending plan and roadmap for you money, it helps you ensure you know how much money you have and what your expenses look like.
You’ll understand if you have money for the things that are most important to you.
In addition, following a spending plan can help pay off credit card debt fast, pave way for your financial freedom, among others.
5. What is the goal of budgeting?
The two main goals of budgeting are to help you come up with a plan designed to get you to spend less than you earn and to exactly know where your money is going.
Once you have a working plan, you can, then, work towards achieving your other goals such as saving money and getting out of debt.
You’ll find more information on the advantages of budgeting (below).
The Practical Saver Pro Tip
Success in budgeting doesn't come overnight. That's one of the limitations of budgeting. It's not a one-stop-solution for all financial problems. If it were, then, a lot of people would have successes in this area.
14 Surprising Benefits of Budgeting Your Money
Financial planning may not always be easy to do, but it’s all worth it. It’s not just about looking at your financial statements and making adjustments, but it starts there.
Here are some of the benefits you can get from budgeting any amount of money.
1. Long-term goal can be realized
When you plan out your money in an organized manner, you can easily reach your long-term financial goals in a speedier fashion.
That’s one importance of a budget.
Whether you are eager to pay off your home mortgage or want to pay off that pesky car loan, having a plan and striving for long-term financial goals will help you reach those goals faster than you ever thought.
Here’s the reality:
If you have school loans which have been on your mind and you want to pay them off more quickly, use your budgeting skills to find a proper way to do so.
Your budget allows you to see what you can do to reach those goals.
For example, if you need to earn extra money to achieve those goals, you could of side hustles to help you with that.
There are opportunities out there that doesn’t really require you to get a second job and be stuck in the corner. Some part-time work from home jobs can work for you and, actually, pay you more.
2. Ability to pay bills
When you have a money plan, you can have peace of mind knowing that you’ll be able to pay the bills when they’re due.
Because you exactly know what you have and don’t have. You know how much money you have and your total expenses are. From there, you can figure out which expenses need to be cut to save money or meet ends.
If you can’t pay bills, your plan will help you see through your what needs or what can be done with your finances.
Believe it or not:
There’s no better feeling than knowing that you’re able to meet your bills, save money, and sleep at night without worry about how you can address your financial issues.
Paying the bills with ease is a prime example of the benefits of budgeting.
If you need help cutting down your bills without sacrificing the benefits, here are some bill negotiation apps that can help you with that:
- Trim – negotiates even the most difficult bill you have. Last month alone, it saved users over $1 MILLION. That’s with an M. See my Trim review here.
- Charlie – a free app that helps you cut your bills without even downloading an app. Just text Charlie and it will find you some savings. That’s easy. So far, Charlie’s helping people pay down $50 MILLION in credit card debt.
- Cushion – is designed to get your bank fee refunds. Tired of seeing late, maintenance, overdraft, foreign transaction fees, etc. Cushion is your best friend to negotiate with the banks. Period.
3. Less stress
Simply by knowing that you have a money plan will bring less stress into your life, which is one of the advantages of budgeting.
When you know that you won’t be scrambling to pay bills when they’re due, buy groceries which you can’t afford at the moment, or endure any other type of expense, less stress will be felt.
Stress and financial worries go hand-in-hand. If you want to alleviate stress, get rid of those financial worries by having a plan in place.
4. Family cohesiveness
When it comes to budgeting, it is important to include your family in this process.
By creating a budget and including everyone in the family in the process, you are working together to achieve a common goal and adding to the overall family cohesiveness.
Here’s what really works:
Work as family to look over the income and expenses and decide which ones can be eliminated and which costs are necessities.
Spouses and older children will find that looking at the money aspect will not only help save money but will also be an eye-opening experience for everyone in the family to know that money is earned from hard work and expenses are always there.
Your showing yourself as an example of transparency, something that your family members will appreciate.
5. Organized spending
Spending money can sometimes be done at a frantic pace with no rhyme or reason to it.
When you have a spending plan that you follow, you’ll enjoy organized spending.
I should say with one, you’ll be more aware of what you spend. That’s a great thing, actually.
You’ll know what you need to buy, what you want to buy, and what you shouldn’t buy, at least for the time being.
If you’re the type of person who is frugal or wants to be one, what’s to live cheap, and save money, being organized with how you spend your money is a key to achieving this lifestyle.
Organized spending is another one of the benefits of budgeting. In one aspect, the purpose of a budget is to help you organized your spending and manage your finances well.
The Practical Saver Pro Tip
Having a spending plan is one of the factors for successful budgeting. That said, it's not the only factor. That one of the limitations of budgeting. That said, develop the budgeting skills you need to execute your budget effectively.
6. Access to money for emergency purposes
When creating a budget, it is important that you have goals in mind. This should include putting money away from emergency situations.
You never know when you’re going to need some extra cash.
Here’s the reality:
Whether you need immediate car repairs or have to pay for medical bills which recently popped up, you can take your emergency fund and put that towards the necessary payments.
When you have a bit amount of money saved away as part of your plan, you know that should you ever need it, the money’s there.
Here is a statistic:
Around 63% of Americans don’t have enough savings to cover a $1,000 emergency.
Here’s a scarier fact:
Thirty-four percent of American households experienced what’s considered as a major unexpected expense over the past.
The moral of the story is it is always best to have emergency funds stashed away. That’s where budgeting can be most beneficial.
7. Ability to reduce debt more quickly
When you have a money plan in place, you can pay a larger amount of money on certain bills and reduce the overall debt in a quicker manner.
That’s one of the best benefits of budgeting, and probably the best one.
With a spending plan, you can look at your expenses, see debts have the higher interest rates, and then pay more money on those bills, if possible, to reduce the balance more quickly.
Using one will allow you to see what money comes in and how much money you are able to spend to pay off debt.
If you’re looking to reduce your debt fast while you’re budgeting, here is a product that could help you:
- SoFi – offers personal loans with interest rate as low as 5% (while credit card interest rates hover at 23%) to help you consolidate your debt and pay low in interest. There’s savings there.
- Tally – is the world’s first automated debt manager that makes saving money, managing your cards, and paying down your balances faster. Tally will pay your debt in exchange for a better debt arrangement, potentially saving you hundreds of dollars.
In one aspect, the purpose of a budget is to help you get out of debt.
8. Control over money
Having a budget in place means that you are the one in control and this is important for budgeting.
You won’t find yourself aimlessly spending money around town if you have a plan and stick to it. Or when there are unexpected costs, you won’t find yourself in a tight situation.
With a plan, you know what you can spend and ultimately you are the one in control of your spending habits and can do so in an educated manner.
But, don’t worry, you can always put a little bit of cash aside for fun purposes and not reserve all income for bills and other necessary expenses alone.
9. Ability to gain extra money
When you plan out your money, you can actually have more money in your account by not having to pay late fees or over-the-limit fees on bills that you didn’t see coming and weren’t prepared to pay.
How is that possible?
It’s possible because you exactly know what your expenses are, when they are due, and for how much. Knowing all of these can help you stay on top of your financial responsibilities. Thus, reducing your chance of not paying on time.
By not having these expenses, you’ll have more money in your pocket over time.
10. More knowledge as to what you buy
With a money plan in place, you know what income is coming in and what expenses are going out.
With this type of spending habits knowledge, you know what you can afford and actually what you are buying, which will enable you to save money in the long run.
Having a written plan allows you to make informed decisions about your spending. Maybe you don’t need those designer shoes or leather briefcase.
Save your money and decide if those items are really worth the cost or not.
11. Ability to prioritize your spending
When you create your budget, you’ll be able to prioritize your spending or make financial planning a priority.
It’s one of those benefits of budgeting that people tend to overlook.
It’s a skill that doesn’t overnight.
Don’t hit yourself when you can’t do it the first time. Prioritizing your spending will get over time with practice and discipline.
If it were too easy to do, then, a lot of people will have their priorities straightened out. I’m just saying.
Here’s what you can do:
Look at your income and then think about what you really need to buy and what you can wait on. From there, you’ll figure out what you can do to start living below your means.
By prioritizing your spending, you’ll be saving money and not spending without a care in the world.
12. Ability to reach Your financial goals with ease
Individuals often make up plans in order to achieve specific financial goals, whether it’s saving up for a new car or budgeting in order to pay for an upcoming wedding.
Believe or not:
Whatever your financial goals may be, when you plan out your money, you’ll be able to achieve your goals much more easily.
It’s because you know exactly what you’re aiming for. You know what you want and what steps you need to do to get it.
You’ll be surprised how far simple budgeting can benefit you. You’ll also be surprised that you could do a lot more even with less money.
That’s one of the hidden benefits of budgeting.
13. Cutting out unnecessary costs
When you have a money plan in place, it will make it less likely that you will spend unnecessarily.
Maybe it’s heading to the nail salon once a week, any short term activities like summer camps, or buying subscriptions to magazines, which you never really get a chance to read.
When you create a money plan, you’ll be able to look at all of your monthly expenses and then cut out unnecessary and even unexpected costs with ease.
The best part:
Budgeting can help you define what needs or wants are. That’s one importance of a budget or budgeting that people tend to overlook.
14. Recreational spending money
With a money plan, you can write down what you earn each month and what you need to spend each month for bills and other expenses.
Remember that just because you are on a budget doesn’t mean that you shouldn’t spend a little bit here and there.
The whole point of budgeting is to help you in managing your money and not deprive you of even the smallest wants you may have.
After all, what’s the use in working all of the time, if you can’t have a little bit of fun along the way?
The Practical Saver Pro Tip
When your spending plan system doesn't work, don't give up. There a lot more systems out there that you can try. Remember that no single system works for everyone. Find what best suits you.
Why do we budget?
The truth is:
There are various reasons that you do it. Some do it to pay off debt fast. Some do it to save money. Some do it to retire early.
Whatever the reason may be, one thing is common:
You want to take control of your finances, and get back on track towards your financial freedom.
With a money plan, you can make adjustments to your finances to ensure you make ends meet. You can adjust your plan accordingly.
With a plan in place, you get to see the big picture while still have the ability to look into the details. By creating a list of priorities (in your plan), you’ll understand how much is going to which expenses.
A good plan is something that can be challenging at first, but one that will let you stop from overspending. It is your guide to live within a reason.
If budgeting were simple, then, people would be doing it all the time and would have had success.
Budgeting Skills To Master
The key to making your budget your best friend and lifelong partner is by having the right set of budgeting skills.
Here are some of them:
A working plan doesn’t work out overnight. It takes time, practice, and a whole lot of discipline.
Just because your plan doesn’t work in the first week or two doesn’t mean it won’t work at all.
When you are on a spending plan, make sure you are disciplined with your finances. If your plan says you can only spend $100 per month on grocery, stick with that.
Pay attention to your plan. Adjust it, if necessary.
When you don’t have money left, then, stop spending! Following this tip will help you remind yourself of the bigger picture.
2. Right questions to ask
When you’re planning out your money, you’ll ask a ton of questions to yourself.
These include questions on how much you need to spend on entertainment, what you can cut from your existing expenses, among others.
You may not always like the answers. But being honest to yourself and responding to your own questions truthfully can and will help you become more aware of yourself and your finances.
There’s no hard and fast rule when it comes to budgeting.
Each person’s situation is unique, and you don’t always need to follow the standard way of planning out your money.
But one thing is a must, that is, when you’ve found your budgeting system and you’re plan is all laid out, make sure to stick to it.
If the system doesn’t work for you, find and try another one. Sometimes, it’s about trial and error.
When you find the right one, good things will follow.
The Practical Saver Pro Tip
You've reached at the end of this post. By now, you have learned why budgeting is important, what the limitations of budgeting are, among others. Now, it's time for you put all the lessons learned in practice.
Final Thoughts: Advantages of Budgeting
The aforementioned items answer the question, “Why is budgeting important?”
Creating a budget doesn’t mean that you have to spend every last penny on necessities.
When you create a plan, you’ll get all of your bills paid, see what expenses are unnecessary and figure out a way to cut those out of your monthly payments, and reserve a little money for fun and recreation as well.
There are many advantages of budgeting your money and of knowing the importance of a budget. Once you see what you can achieve by doing so, you’re certain to want to start establishing one to live by.
If you’re wondering how to budget and save money, view more information on this topic online.