What Is a Budget and How Can It Help You?
A budget is a spending plan that helps you decide where your money should go every month. Creating a budget ensures you pay your bills on time each month and don’t spend more than you make. Budgeting also helps you save money for goals and emergencies.
If you’re not budgeting your money, starting a budget is the first step toward improving your finances both short-term and in the long run.
Without a budget, it’s challenging to live within your means and stop living paycheck to paycheck. If you don’t know where your money goes every month, you can end up overspending, not having enough money for your bills, or racking up credit card debt.
7 Ways Budgeting Helps You
Budgeting helps regardless of your income or current financial situation. Here are the main reasons for budgeting and how creating a monthly budget can help you get your finances under control:
1. Budgeting Helps You Control Your Spending
Creating your first budget forces you to examine your spending habits. You’re likely to find that you’re spending money on stuff you don’t need.
Whether it’s paying for a gym membership or subscription you don’t use, spending a lot of money on restaurant meals, overspending at the grocery store, or buying new clothes when you have a closet full of outfits already, you’ll rethink how you spend money. Things like a cup of coffee every day, movie tickets, snacks, and paying for parking add up. You might be surprised at how much you’re saving each month once you cut out unnecessary purchases.
2. Budgeting Will Help You Live Within Your Means
Without a budget, you can easily overspend without realizing it until it’s too late.
When you run out of money, you might turn to credit cards to pay bills and cover living expenses until you get paid again. That’s how you get trapped by credit card debt.
Budgeting helps you see exactly how much money you have coming in, where it goes, and how much you can afford to spend. You’ll know how much you have at any point during the month.
Besides giving you a complete picture of your finances, your budget ensures you don’t spend money you don’t have and helps you establish good money habits while you break bad spending habits. Keeping your spending in check and living below your means enable you to avoid money problems and gain financial security.
3. A Budget Can Help You Get Out of Debt and Stay Out of Debt
Getting out of debt requires focus, discipline, and paying more than the minimum on your debt payments each month. Budgeting helps with all three of those things.
When you build your budget, you’ll find ways to trim your spending. There might be unnecessary expenses you can reduce or eliminate. The extra money you save can go straight toward aggressively paying off debt.
If creating your budget reveals that your financial situation is so tight you don’t have room to throw a little extra at your credit cards or student loans, it might be time to consider a second job, freelancing for more income, asking for a raise, or starting a low-cost side hustle. Then you’ll have more cash to budget toward retiring your debts.
Your budget is your financial roadmap. It prevents you from overspending and living beyond your means. To get out of debt and stay out of debt, put away your credit cards and follow your budget.
4. Your Budget Helps You Prepare for Emergencies
Every person faces unexpected expenses from time to time. Things break, we get sick, and jobs get eliminated without warning. That’s why it’s important you establish an emergency fund to give yourself a financial cushion when an unplanned life event occurs.
Your budget should include putting money aside for emergencies until you have at least three to six months of living expenses socked away. If you suffer an expensive surprise or a job loss that forces you and your family to live on one income for an extended period, your emergency fund will help you avoid spiraling into debt.
It will take time to save up several months’ worth of living expenses. Don’t try to do it all at once. Make it a goal, put away what you can, and your emergency fund will build up over time.
5. A Budget Helps You Reach Your Financial Goals
When you budget, you set goals, decide how much money to put toward them every month, and track your progress. Maybe you want to get one month ahead on bills, pay off your student loans, or adopt an aggressive savings strategy to build up your cash reserves. Your savings goals could include paying for a major expense in cash, buying a new home, paying for a child’s education, traveling, or retiring.
No matter what your savings goals are, incorporate those things into your budget and put money toward them each month. Make your goals SMART: Specific, Measurable, Achievable, Relevant, and Time-bound.
Budgeting helps you clarify your short-term goals and long-term goals then work toward them. It’s also easier to say no to frivolous spending when you have clearly defined SMART financial goals you’re working on.
6. Budgets Help Relieve Stress
One of the many benefits of budgeting is stress reduction. Worrying about debt, struggling to keep up with the rising cost of living, wondering if you’ll have enough to retire, and being sick of having no money leads to sleepless nights and a stressful life.
When you create a spending plan, you know where you stand financially. You’ll sleep better at night knowing you pay your bills on time, you have enough in the bank to cover your expenses, and you’re on your way toward reaching your goals.
7. Budgeting Helps You Strengthen Your Marriage
Money is one of the leading causes of divorce according to multiple studies. Uncomfortable conversations with your partner about money can lead to arguments, anxiety, and the end of the marriage.
When you work together to build a realistic budget, you’ll find you communicate better, you hold each other accountable, and you’re on the same page. That puts your marriage on much more solid ground, even if there’s an income disparity between partners.
How Budgeting Helps You
Don’t underestimate the importance of budgeting when it comes to getting your finances under control and managing your money wisely month to month. Budgeting is one of the best financial habits you can adopt.
When you create a household budget and follow it, your bills are paid on time, you spend according to your priorities, and you spend less than you earn. Your budget can help you save for big purchases, retire your student loans, get out of credit card debt, and reach your goals.
Everyone can benefit from budgeting and you don’t need to be an expert in financial planning. You don’t need any budgeting apps or fancy tools to create your first budget.
All you might need to create an effective budget is your bank statements for the past few months, a blank spreadsheet, and a little determination.
Once you see how much monthly income you bring in and what you spend, you can make changes to lower your monthly expenses, increase your income, and get your financial life on track. Review your budget from time to time, keep an eye on expenses, and make adjustments when necessary.
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Jerry is a personal finance enthusiast, side hustler, and freelance web developer who began his career in financial services. He co-founded KindaFrugal.com, a personal finance and frugal living blog. His insights have appeared on MSN, Newsweek.com, HerCampus.com, Mashed.com, and many others.