Advantages and Disadvantages of Budgeting

Pros and Cons of Budgeting

Putting yourself on a budget can be one of the best things you do to improve your financial outlook.

But that doesn’t mean there are no disadvantages to budgeting. If you’ve never set up a budget or are hoping budgeting can solve your financial problems, know that budgeting can be difficult and emotionally draining. Seeing the results of putting yourself on a budget might take much longer than you would like.

That said, the advantages outweigh the disadvantages, but you should be aware of both sides.

The Advantages of Budgeting

If your financial situation isn’t where you want it to be, or your spending is out of control, getting on a budget can help. If you need convincing, here are several advantages of budgeting:

1. A Budget Gives You Control

Working hard every day yet feeling broke at the end of the month is incredibly disheartening. You feel helpless and out of control. But that’s what happens when you don’t budget, don’t monitor your spending, and don’t have a plan.

A budget is your spending plan. Budgeting puts you back in control of your money. Not budgeting is likely to make things worse.

When you create your budget, you decide where your money goes ahead of time. Then it becomes a matter of putting your plans into action.

You know how much you have coming in, how much you have going out, and when. You’re not surprised or scrambling when a bill comes in. You’re prepared for emergencies and putting money toward your goals.

2. Budgets Help You Spend According to Your Priorities

A budget is not about restrictions. It’s about choice.

When you don’t budget, you might spend according to your whims. Maybe you want to build up your savings, but you only put away what you have left at the end of the month. Some months that’s probably zero, so you need a better strategy.

When you budget, you determine your goals, needs, and wants. Then you prioritize. You choose where you spend your money based on your priorities.

Things that aren’t in the budget aren’t a priority, so you don’t buy them. If a need or a want arises, you budget for it, save until you have enough, then pay in cash. If you want to grow your savings, you work it into your budget and pay yourself first.

3. Budgeting Prevents Overspending

Many people get in trouble with credit card debt because they spend more than they make and then use credit cards to make ends meet. Falling into that trap is easy when you don’t have a budget and have easy access to credit.

Living below your means is one of the key principles of good money management. Spending less than you make is the surest path to bettering your financial situation and reaching your goals, even if you don’t make much money. Budgeting helps you stop overspending and start living below your means.

4. A Budget Ensures You Pay Your Bills on Time

If you’re throwing away money on late fees or dodging collection calls all the time, one advantage of budgeting is putting an end to all that. With late fees typically falling in the $25 to $50 range, being late with payment is a huge waste of money. And late charges are easily avoidable.

By creating a budget, you’ll know who to pay, how much to pay, and when the money is due. You’ll have the money earmarked for all of your bills. You can set up autopay through your bank, creditors, or service providers, so you don’t have to think about it.

5. Budgeting Identifies Expenses to Reduce or Eliminate

Budgeting forces you to take a hard look at your income and expenses. What you think you spend and your actual spending could be far apart if you’re not budgeting.

We all buy things we don’t need on occasion. If you often spend money impulsively or spend first and ask questions later, budgeting is corrective action for those bad spending habits. You can get your expenses under control and find opportunities to reduce unnecessary spending through budgeting.

Budgeting helps you find opportunities to reduce spending. In setting up your budget, you might be surprised to discover how much you’re wasting or spending unnecessarily every month.

You might be subscribing to a service you don’t use, eating takeout multiple times a week, or buying clothes when you have stuff in your closet you haven’t worn. You might see what you’re paying for car insurance or your mobile phone plan and consider lowering those costs.

Review your budget for the previous period. Ask yourself which expenses can be lowered or cut. You’re bound to find one or more expenses to cut on your own, but if you need ideas to lower your spending, check out these frugal living tips.

6. You Make Steady Progress on Your Goals by Budgeting

Whether your goal is to build up your bank balance, get out of debt, take your dream vacation, or something else, your budget will be a major advantage in helping you get there.

Budgeting shows you exactly how much money you have coming in and going out every month. Treat your goals like any other expense. Put what you can toward them.

Budgeting also shows you where you could cut back or stop spending. Put the extra cash you free up toward your financial goals.

7. Budgeting Helps You Prepare for Emergencies

If you don’t have any money set aside in case of an emergency, make starting an emergency fund a priority.

Why do you need an emergency fund? Because you can’t anticipate everything. And unplanned expenses can ruin even the most well-thought-out financial plan.

An emergency fund with three to six months’ worth of living expenses is ideal. More would be better if your income is unstable or your local job market is thin.

If you’re up to your ears in debt, try to put away at least $1,000 before aggressively paying off your balances. That way, you can avoid taking on more debt if you’re hit with an unexpected expense.

If you’re starting an emergency fund from zero, you won’t get there overnight. That’s OK. Add a budget category for your emergency fund, and make sure you contribute monthly.

8. Budgeting Helps Relieve Stress

Money problems are stressful. You might toss and turn at night wondering where all your money goes, whether you can make rent, or if you’ll ever get out of debt. Getting on a budget can help alleviate those negative thoughts.

You need a plan for your money in bad and good times. When times are tough, your budget ensures your money works for you. When things improve, you make faster progress on your goals.

It can be a double-edged sword in terms of stress levels. Making sacrifices and making big changes can be stressful at first.

In the end, the initial stress of making positive changes goes away. More importantly, the stress of worrying about your financial situation goes away too.

Disadvantages of Budgeting

While creating and sticking to a budget will help you achieve your financial goals, it’s not easy. It’s also not without disadvantages, especially if you’ve never budgeted or neglected your finances for some time.

1. Building New Habits Is Hard

Building new habits and getting rid of old ones is very difficult.

If you’ve ever made a New Year’s resolution or tried breaking a bad habit, you know this. Putting yourself on a budget is not like flipping a switch. You’ll likely have to change or rid yourself of some existing habits and build new ones.

If you’ve never tracked your expenses and haven’t looked at your bank statement in a long time, getting on a budget and building better money habits won’t be easy.

2. Building a Budget You Can Stick With Takes Time

Starting a budget from scratch involves trial and error. You might underestimate an expense or choose a style of budgeting that doesn’t suit you. Over time, you’ll come up with a realistic budget you can stick to, but there might be some bumps along the way.

Unfortunately, there is no one perfect budgeting method that works for everyone. Different types of budgets have different strengths and weaknesses.

Some, like traditional budgeting, zero-based budgeting, or the half-payment method, are more labor-intensive, even with fancy budgeting tools like budgeting software or a mobile app. Others, like the 50/30/20 system or the 30/30/30/10 budget rule, might be too simple to be effective in your circumstances.

If you choose the wrong budgeting technique, you’ll get frustrated. You’ll consider giving up. Don’t.

Try a different budgeting system or app until you find the one that suits you best. While there is no one size fits all solution, there is one that fits you.

Finding the right budgeting style for you might take a while. Decide if you need a rigid budget structure or more of a flexible budget. Choose your budget accordingly.

3. Budgeting Can Be Time-Consuming

No matter what budgeting method you pick or tools you use to monitor your income and spending, you will spend time reviewing your finances on an ongoing basis. Maybe a lot of time.

First, there’s the initial setup. That might involve a lot of prep work, such as

  • Reviewing all your bills
  • Poring over bank and credit card statements
  • Adding up your income, especially if it fluctuates or you have multiple sources
  • Creating budget categories
  • Averaging out variable expenses
  • Inputting it all into an app or spreadsheet or getting it down on paper

Then there’s the required maintenance. Even with the simplest budgeting methods, a budget requires regular updating and review. That could mean working on your budget once a week, once a month, or every day.

4. You Might Face Resistance From Family

You’re not the only person affected when you set up your household budget. Family members might be accustomed to having certain things that aren’t part of your new spending plan. There could be hobbies, activities, events, and habits that no longer fit.

Getting your family on board probably won’t be easy. You might dread having those conversations. If you’re convinced it’s worthwhile, convincing your family it’s worthwhile is a challenge you must accept.

5. Your Social Life Might Not Be as Social

Other people are impacted even if you’re just making a personal budget for yourself. Your friends and family might be accustomed to seeing you at places or doing things together that you just don’t have room for any more.

Try suggesting lower-cost activities. Hopefully, they’ll see that your company is more important than how much you can afford for a night out.

6. Results Don’t Come Quickly

Budgeting should not be confused with a magic wand. Digging out of a financial hole usually happens slowly.

Staying motivated when your results aren’t coming as fast as you hoped is tough. That’s where focusing on the process is more important than focusing on the long-term goal or number.

If you stick to the budget you’ve created, you will eventually reach your goals. Celebrate progress. That way, you win when you come in under budget or save more than you did last month.

7. You Might Get Burnt Out

Frugal fatigue does happen. It occurs when you’ve been living on a budget for a long period of time.

Throughout the budgeting process, you’ll encounter hurdles and challenges. It’s hard to say no to friends, family, and other temptations. Adopting a more frugal approach and making financially sound decisions won’t always be fun.

There will be moments of frustration. You might be tempted to loosen the purse strings or undo all of your progress with one swipe of your credit card.

Acknowledge those feelings, but don’t give in. Those feelings are only temporary. Remind yourself you’re working toward a better future and lasting financial freedom.

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