A budget serves as a matchmaker. It connects this end (your spending) to that end (your income) and brings them together.
If getting or keeping your money in order is one of your goals, the importance of budgeting cannot be overemphasized.
But that’s just the beginning of what it can do for you. There are additional matches that a budget can make. Let’s look at how these seven reasonable budgeting benefits relate to your financial wants and demands.
1. Budgeting can be beneficial in an emergency
Because of the blizzard, your roof caved in. Your usual paycheck vanished overnight, thanks to those callous corporate bean counters who ordered job cuts. Your child shattered his ankle as a result of the fall from the tree.
Yeah. Thank you very much.
Unexpected ugly bills like those (and a slew of others) can catch you off guard, but there is a way to plan for them: add an “emergency” line to your family budget.
You can almost always count on them appearing when you least expect them. Coincidence? Fate? Is it just bad luck?
A budget that contains an emergency reserve eliminates the roles of chance (or lack thereof), fate, and coincidence. With an emergency fund that can cover your living expenses for three to six months, it won’t be as financially painful to re-roof the house, conduct a thorough search for your next job (the right one this time), or put your tree-climbing child’s foot in a cast (though it’ll be painful for the poor kid even if it doesn’t hurt your wallet).
Including an emergency fund in your budget does not have to be an expensive endeavor. It may take some time to build up enough funds to last you six months, but a budget will help you get there by encouraging you to contribute a certain amount to your emergency fund every week, no matter how small.
2. Budgeting can aid retirement
What do you intend to do in retirement? Travel? When are you going to learn to dance? Babysit the grandchildren? Do nothing at all. Live like Snoop Dogg on the beach in an Adirondack chair with a smoking jacket, popping the top on a Corona Extra? Wait a minute. That is his TV commercial persona. (To be completely honest, a certain writer probably watches far too much television.)
Do you wish to be able to retire even before reaching your senior years? How much money will you need each month once you’re no longer punching a time clock?
That’s excellent if you already know the answers to those questions. You can incorporate the specific savings you’ll require into the budget you’re working on right now.
Most people, however, do not have such specifications in mind. They simply know that they will wish to save enough for retirement. A budget can also handle this. It will assist you in determining how much you can afford to contribute on a regular basis to a 401k or an IRA at any stage of your financial life, and it will assist you in continuing to make those contributions.
If you stay with it, your retirement savings will be waiting for you when it’s time to, as Snoop says in the commercial, “start living the fine life.”
3. Budgeting can assist you in breaking bad spending habits
You may be reluctant to confess that certain of your spending habits are detrimental to your financial well-being. They’ve been with you for so long that they’ve become a permanent fixture in your life. Movies. Services for streaming. Nights out on a regular basis.
A strong desire to have the best of everything Like a daily almondmilk chestnut toasted (yeah, that’s a completely made-up drink) at the high-priced coffee shop around the block. Not to mention the on-the-spot impulse purchases—headphones, footwear, sweaters, sports jerseys, earrings, and various trinkets—that your credit cards facilitate. You had to have all those hats, right?
A budget will assist you in considering alternative answers to that topic. In many circumstances, the answer will be: No, you don’t need ’em.
Recognizing the problem is the first step in breaking any harmful habit. When a budget requires you to detail and categorize your spending decisions, those previously unnoticed items will become apparent.
It may appear difficult to change your unhealthy spending habits. You’ll almost certainly have to make some unpleasant decisions. However, your budget does not have to be rigid. You might still be able to purchase a new automobile, but your budget may only allow for a Kia rather than the Tesla you’ve been eyeing. And your budget may still allow you to visit your favorite coffee shop, as long as you order a basic, wonderful coffee rather than that pricey, exotic other thing.
4. Budgeting Gives You Financial Control
Power comes from knowledge. You’ve probably heard that. A budget, on the other hand, keeps you informed about how much money you have, how much money you’re saving, and/or how much you may be overextending your resources. Budgeting, in other words, gives you control over what you can afford and when you can afford it.
Perhaps you’ve been having trouble paying your credit card payments on time. Perhaps the beach trip you desire appears out of reach. Perhaps the holidays placed extra pressure on your already-strained cash reserves. When you don’t have control over your financial life, you may find yourself sliding deeper and deeper into a money-you-don’t-have hole. Getting out of debt can sometimes appear to be an impossible task.
Saving money by using a budget provides you with the knowledge and authority to change that. Knowing how much you’re spending and prioritizing what you’re spending it on in relation to the amount of money available to you will lead to financial freedom in the long run. That is a strong feeling.
5. Budgeting ensures that you spend just what you can afford
We mentioned that before: A budget can help you determine whether or not to buy anything. Without a budget, those decisions may be influenced by less financially smart reasons, such as the presence of a credit card burning a hole in your wallet or purse that will allow you to have that thing now, regardless of whether you can pay for it later or not.
In fact, credit card debt is the single most common problem among those in financial distress, and it’s getting worse. According to Forbes, the average credit card load for Americans in late 2022 was around $6,000. This represents a 15% increase over 2021, the highest year-to-year increase in more than two decades. Clearly, many spending decisions nowadays are not based on affordability.
Consider a budget to be a kind of spending governor. It will drive your decision-making in a favorable direction, improving your financial well-being. Because your budget shows you how much you make and how much you save each month, you’ll know how much you can afford to spend each month.
6. Budgeting can help improve family life
It may take some time to persuade the rest of the family that sticking to a budget will improve their lives. We’re not going to pretend that reducing spending is a simple sell to kids who are accustomed to getting whatever they want at the mall whenever they want it. In the long run, though, a budget can significantly improve your domestic peace.
To begin with, living within your means will decrease tension. Debt has been identified as a major source of clinical distress in studies. (We’ll go over this in further detail in the following section.) It’s easy to understand how eliminating financial stress may lead to a happier family life for everyone. When your budget eliminates your debt, the financial objections fade away.
The second advantage of a budget for a family’s well-being is that it may help everyone grasp the dos and don’ts of dealing with money. It’s difficult to emphasize the importance of instilling good financial habits in your children, even if it means using your own bad spending habits (which prompted the need for a budget in the first place) as an instructional counterpoint.
Including the entire family in the formulation and implementation of a budget gives each member a sense of participation, if not ownership, over your family’s financial health. Regular financial discussions can lead to productive communication chances, which are always beneficial in a family. For example, everyone may help organize a weekly money-saving meal menu program.
7. Budgeting has the potential to reduce financial stress and improve mental health
Concerning the debt-related distress we mentioned a moment ago… It can be more acute when someone is struggling financially and living paycheck to paycheck. If you don’t believe your finances can withstand an unexpected bill, it’s no surprise that you’re missing sleep, having panic attacks, or experiencing unusual mood swings.
Or even worse.
Anxiety about money might also be linked to bodily issues. It can have an impact on your blood pressure and heart rate. It can damage your memory and lead you to gain weight. Again, minimizing your financial stress can be a significant benefit of a budget that will help you get out of debt.
Your emotional or physical health, as well as a budget? That’s a match that should be made.
What Is the Process of Making a Budget?
Remember that a budget matches your expenses to your income, allowing you to change your spending as needed. Sorry to break it to you, but putting one together will need some arithmetic. You’ll also need to bring some organizing abilities to the endeavor.
These basic steps should get you started on creating a budget:
- Gather your financial papers, such as bank statements, credit card balances, investment accounts, pay stubs, and so on.
- Determine your monthly revenue.
- Include fixed costs such as rent or mortgage, auto payments and insurance, health insurance, energy bills, and credit card payments in your monthly spending. Make every effort to incorporate variable expenses such as meals, travel, and entertainment.
- In separate columns, total your expenses and revenue.
- Examine how your expenses and revenue compare.
- When you can compare those two figures, you can begin to sort through what needs to be done to bring them into alignment. To make the budget work for your money, you must first identify the areas in the costs column where you may minimize spending.
- It’s not as frightening as you may think. In truth, there are very simple resources available to help you decrease your load. It’s worthwhile to look into some of the cheap apps developed to assist you with the procedure.
- Of course, having a budget in place is useless unless you commit to sticking to it. This is where your determination comes into play.
Here are some pointers to help you make your budget work for you:
- Understand the distinction between luxuries and necessities.
- Be cautious that minor details might quickly pile up. (Remember those fancy coffee drinks?)
Keep your cool. Willpower!
- When possible, pay with cash rather than a credit card.
- Speak with a professional about achieving your financial objectives.
Are you still persuaded of the value of a budget? I’m hoping so.
However, if you require more information or confidence that a budget will be an important step on your path to financial recovery and well-being, please contact a professional credit counselor. A counselor at a nonprofit credit counseling firm, such as InCharge Debt Solutions, can help you with your budgeting inquiries and concerns. He or she can even provide you with tailored recommendations for reducing your spending and increasing your revenue.
A credit counselor will discuss debt management plans and debt consolidation with you to see if they may be an appropriate strategy to improve the effectiveness of your budget.
A session with a counselor from a nonprofit credit counseling service is free of charge. The sessions are typically conducted over the phone, although they can also be conducted in person or online.
There’s no reason to keep waiting. Begin now. Collect those documents. Make contact with a credit counselor. A budget can be a financial match made in heaven.