When money management gets brought up, you can’t effectively continue the conversation without bringing up budgeting. This is because good money management goes hand-in-hand with the ability to budget well. There’s no doubt that budgeting is one of the most basic yet effective tools to manage funds efficiently.
Most people agree that budgeting is an incredible way of organizing your finances. If most people agree with this statement, why are there so many people who find themselves in financial difficulty?
The problem surrounding this issue is that people often half-heartedly create their budgets or completely avoid it because it’s additional work. Budgeting also has the reputation of restricting people from enjoying stuff. This is understandable because people may lack the skills for budgeting and the knowledge that you can better organize your finances without sacrificing much.
The actual purpose of budgeting is not to restrict, but rather clearly indicate where your money is being spent. This will show you different opportunity costs that are created from your spending habits. Next, you will be able to analyze and choose which items and categories you want to spend your money on.
By conducting your finances like this, you will save a substantial amount of grief caused by overspending or being in debt. When done effectively, budgeting doesn’t stop you from ‘living a little’ and enjoying stuff. The benefits of budgeting actually provide you with the opportunity to enjoy things that you want, when you want to.
Budgeting may seem like too much of a hassle to some. The fact is that creating a well-thought-out, and accurate budget can be hard work, but the effort you put in pays off in the long run. This is because some of the benefits of budgeting hold life-enhancing features.
With all that said, now we can get to the list of the benefits of budgeting.
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1. You Remain Focused On Your Money Goals
A budget helps you see the bigger picture, and set money goals that you would like to achieve. Identifying, setting, and working towards these goals enables you to avoid spending money on unnecessary items or services.
Another benefit of budgeting is that you’re able to make ends meet if you’re working with limited resources. This is a critical skill as budgeting could possibly be the only thing keeping you off of the streets. Here are my tips for creating a budget when on minimum wage.
This is actually a pretty serious topic that I think is imperative to discuss. A huge benefit of budgeting includes being aware of all your expenses. You are likely to find yourself in significant financial difficulty if you are running wild and spending up a storm without being aware of your financial situation.
Don’t feel bad if this is you. I can tell you right now that I had my dark moments of spending more money than I could count on some days. But, I am here to tell you that this is not sustainable.
It is vital that you are aware of the bills you need to pay, just as it is crucial to know what you are earning. Finding out how much you are going to earn at a job is one of the most commonly asked questions within a job interview.
You should treat your monthly expenses with the same respect, and find out how much you need to pay each month. This helps prevent the risk of you not having enough money when it comes time to pay things such as rent, car bills, electricity, water, insurance, and groceries.
All of these items should be a priority. Making sure your bills are in order helps you remain in a good financial position, saving you a lot of stress.
2. You Have Complete Control Of Your Money
One of the benefits of budgeting is the ability to be intentional about how you’re spending and saving your money. A common saying associated with budgeting is that you get to control your money with a budget, while your money controls you without one. I couldn’t agree anymore.
Whether you are just coming into your 20s, arriving at your late 40s, or anything in-between, you should be putting practices in place to get the best out of your money. Here are some beginner budgeting tips to get you started.
If you are just starting a job, I understand that you may receive your first paycheck and want to splurge a little. It’s an exciting time when you get a ‘proper’ job along with the money that comes with it.
Learning these budgeting skills can actually help you plan your money better to receive the things you want without your money controlling you. It doesn’t matter if you’ve been working for ages or are just starting out. The benefits of budgeting are accessible to everyone. That’s why I highly recommend you implement it into your life now.
3. It Helps You Organize Your Savings And Spending
Creating a budget entails dividing the money you’re receiving into different categories and percentages, such as savings and expenditure. The result of structuring your budget like this helps you identify which categories take up which portion of your money.
This provides you with the utmost convenience when deciding to make adjustments as these categories can be effortlessly reallocated and adjusted.
Another one of the benefits of budgeting is that it serves as a reference when organizing your receipts, bills, and financial statements. This makes it easier and less time-consuming when it comes time for tax season or when you have creditors asking questions. This is because your financial transactions will be effortlessly available and organized.
4. It Shows You How To Make Your Money Work For You In Advance
Budgeting is essentially just a way of planning around money. Wouldn’t you agree?
That’s why it comes as no surprise that one of the benefits of budgeting is that you’re able to predict how your money is going to be distributed before spending a dime. How can this be done?
You can predict how your money is going to last you through the month or until your next paycheck by taking all of your foreseeable income for this particular period and putting it against all of the foreseeable expenses. Within these expenses, you don’t just have to include the bare necessities you need to survive. You can also include other, non-essential products or services you wish to purchase.
Including these items helps you see what you can afford and what you can’t, as you’re monitoring the entirety of your income before even spending it. You then gain the ability to understand how your money is going to last. You also gain the ability to decide how much money you would like to save for that month or time period.
By doing this, it leads to a chain reaction of you receiving all the benefits of budgeting.
5. It Helps You Plan For Unexpected Costs
The benefits of budgeting are endless, and one major advantage is that you can accumulate funds for unexpected costs that may occur. The only thing that you can expect in life is the unexpected. This goes for your monthly expenses, as well.
You can’t control everything. You never know when you may end up with car repairs or maybe a medical emergence. Budgeting effectively helps you prepare for necessary extra costs that you may encounter. This enables you to avoid having to take out loans or credit cards to pay for these unexpected costs.
You’ll likely have known upcoming expenses that you’ll want to cover as well. This includes Christmas gifts, birthdays, and car maintenance. You can set money aside for these known future expenses in sinking funds. Here is an extensive sinking fund list to make sure you aren’t forgetting anything.
6. You Communicate With Your Significant Other About Money
It isn’t strange for households to combine finances. You may be in a position where you share money with either a spouse, family, or another individual. A benefit of budgeting is being able to communicate how you use your money as a group.
Effective budgeting promotes teamwork as you work together towards common financial goals. With teamwork, conflict over how to spend money can be prevented.
Establishing a joint budget with your spouse or significant other can help avoid any conflict that may occur when sharing money. It also aids in resolving personal differences on how each person believes their joint money should be spent.
You may also find that budgeting teaches other family members how to spend money more responsibly.
7. Allows You To Become Aware Of Potential Problems
The benefits of budgeting include seeing the ‘big picture’ view of all of your incomes and your expenses. This provides you with the ability to see any potential money problems you may experience in the near future.
Being aware of potential problems, allows you to make budget adjustments before you actually experience financial hardship. Additionally, you will prevent financial problems from reoccurring.
8. Helps You Determine Whether It Is Beneficial To Take On Debt
Bad connotations surround the idea of debt for most people. Debt can have devastating effects on your financial position, and I always recommend avoiding debt if you can.
Many people choose to take out debt for certain things. You may have a business you would like to fund or a renovation you would like to make on your home.
The benefits of budgeting are getting to see all of your costs and determining if and how much debt load you can realistically take without becoming overwhelmed. The problem with taking debt is that many people don’t consider this step. I was guilty of this, and you may be too.
A common practice for many people is to take out the maximum debt allowance that has been approved for a mortgage or student loans. I can understand this because I have been there. I used to get excited about how much money I could be ‘pre-approved for’ and immediately jump at the chance to get it.
One piece of advice I can impart is to remember that loans aren’t income. Often people, including myself, forget this and look at the incredible amount of money they receive. The bottom line is that this isn’t your money. You need to pay it back eventually.
That’s why looking at how much you are comfortable taking out helps you determine the right amount that’s going to fit with your budget. This prevents you from biting off more than you can chew and pushing yourself into a dangerous spiral of going further and further into debt.
9. Budgeting Allows You To Generate Additional Cash
Establishing a budget provides you with the opportunity to identify, as well as, eliminate any unnecessary costs. These costs may be interests, penalties, and late fees. All of this money is subtracted from your income, which leaves you with less.
Even if these fees are minimal, you need to understand that the little things add up, and they do so at a rapid rate. Preventing yourself from falling victim to paying all of these fees helps you save a little extra money over time.
This money can accumulate to a significant amount, which can be used to cover unexpected costs or help you work towards achieving your financial goals.
10. It Helps You To Effectively Plan for Your Retirement
Let’s say that you follow your budget to a T and don’t have any debts. You have achieved all of the significant benefits of budgeting, right? It’s undeniable that spending wisely is a good skill to practice, but so is saving for your future.
Establishing a well-thought-out budget can allow you to do this. One important feature of a budget that you shouldn’t forget to include is the incorporation of investment contributions. Setting aside a percentage of your earnings each month and putting it in retirement funds helps you build towards a comfortable retirement.
11. Freedom To Follow Your Dreams
Once your budget is set, you now have a plan of attack for all your monthly expenses, savings goals, and debt payoff. If you’re stuck in a job you hate or want to move but can’t afford to, budgeting will give you a step-by-step plan for getting there.
You don’t have to be stuck in your current lifestyle if that’s not what you want long-term. If you want to go back to school and change careers, saving up for college is the first step along that journey. You don’t have to be saddled with thousands in debt or stay stuck in your current situation.
Overall, the benefits of budgeting significantly outweigh the annoyances of learning how. If you’re married, once you and your spouse start working on your budgeting plan together, you’ll see real financial gains.
Now that you know all of these life-changing budgeting benefits, you can start your own in as little as 15 minutes.