When it comes to personal finance, budgeting is one of the quickest and best tools you can use to save money and build wealth in the long run. Funny thing is, most of us avoid it like the plague. We often treat budgeting like another “honey-do” or home job similar to mowing the grass or doing the dishes. People also associate budgets with giving up on fun things and becoming a cheap hermit stuck at home.
Budgeting shouldn’t stop you from having fun. When used properly, budgeting is a tool that can create enough wealth for you to actually go out and have more fun. The basic premise behind budgeting is that you are setting up rules for how you allocate money and what you choose to spend it on, based on the amount of money you have to work with (your income). Doing this and sticking to it will help save you from the disaster of overspending and creating debt for yourself. Budgeting does not stop you from having fun, it makes sure that you get to enjoy the things that are important to you.
With all that being said, budgeting is definitely extra work. But it’s work that is well worth the benefits.
6 Benefits of Budgeting
- YOU control where your money goes. – Of course you already control where your money is going, but without thinking about it in depth and setting rules for yourself you might not realize how out of hand your spending is. By being intentional with your spending and following rules set forth for yourself you will save yourself from stress when it comes time to pay bills or when unexpected expenses arise. You also can sit down, measure out, and decide whether or not to temporarily give up things like weekly drinks out with the boys in exchange for a long term goal like going on a vacation.
- You become fully aware of where your money is going. When you budget properly, you know exactly how much money you are making and exactly where it is going. This allows you to easily identify any issues with credit card or identity theft and also lets you know exactly what and or how much you can afford to spend each month. It also allows you the privilege of being able to look into investment opportunities with knowing how much you can safely invest. By looking at your budget you can clearly see what is important to you in life, based off of your spending.
- Helps you become prepared for emergencies – One everyone should have is an emergency fund. You never know in life when a big unexpected expense will come up, or if you could lose your job tomorrow and be out of work. Budgeting allows you to identify how much you can sock away each month to build up your emergency fund so you never have to worry about something popping up and wiping out your financial stability.
- Helps to bridge the gap in relationships – If you find yourself arguing about money with your spouse or significant other often, a budget can help nail down rules that both of you follow with your money. This can help alleviate arguments that arise from one spouse spending money that the other spouse does not agree should have been spent. Creating your budget together with your spouse can help set forth rules that both of you follow and are both happy with.
- Lets you know how much debt you can take on – Debt is not always a bad thing. When managed properly, loans can be a great tool to help you get things you cannot afford up front, but need now. Knowing how much you can spend each month on debt will allow you to identify how large of a loan you can afford to take, and assess if that loans is worth it to you.
- You “make” more money. The word make is in quotes because you don’t actually increase your income, but you do increase your “take home” pay, so to speak. Using budgeting will let you easily identify problem spending areas (daily coffee, meals out, etc) that you can quickly eliminate to put more cash into your pockets in the long run.
Who Should Be Budgeting?
The quick and obvious answer? EVERYONE! After reading the few benefits we listed above, how could you not want to take the time to create a budget? Basically, you should be budgeting if:
- You are limited on money (almost everyone)
- You are looking to get out of debt, or limit the amount of debt you take on
- You have financial goals
- You want to retire early
- You want to make sure you are making the best use of the money you have
- You care about your personal finances
So what are you waiting for? Start budgeting today, and make sure you stick to it!