If you want to start managing your money and get out of a financial rut, then you have to understand the benefits of budgeting.
For some people, creating and managing a budget is not that fun and can be quite tedious. Additionally, there is a stigma that having a budget means being extremely frugal and that you cannot have fun or spend any money on yourself.
Although you might need to live a more frugal style pending your current financial situation, budgeting is not about limiting your life completely or making you miserable.
What a personal budget does is show you where to allocate your money and how to distribute your income more effectively.
But if you are still skeptical and need more convincing, I put together a list of 11 awesome benefits of budgeting your money below. Let’s dive in!
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Is Budgeting Hard?
For some folks, the mere mention of a budget conjures up images of mile-long spreadsheets, complex calculations, and tight spending restrictions that suck all the fun out of life. If that sounds like you, I have some good news: budgeting doesn’t have to be hard.
Making a budget isn’t complicated: you don’t need to be a financial expert, perform any fancy calculations, or give up everything you enjoy. You do have to be willing to put in the time to understand your expenses, make a realistic plan for your spending, and then stick to it. With a little work, anyone can do it — even you.
Benefits of Budgeting
The hardest part of budgeting is following the plan you’ve created. When the temptation to spend comes calling, it helps to understand and appreciate the benefits of budgeting your money. I’ve made a list of eleven budgeting benefits to convince you to give budgeting a try and to help give you the motivation to follow your plan once you’ve made it.
1. Puts You In Control of Your Money
Several years ago a friend told me, “Either you control your money, or it will control you.” That’s one of the best pieces of advice I’ve ever gotten. Budgeting doesn’t restrict your spending.
Instead, it puts you in control of your money by helping you spend intentionally instead of wondering where all your money is going or why you never seem to have enough.
2. You Become Aware of Your Spending Habits
Budgeting forces you to be aware of your spending habits. You may be shocked to find out how much you’ve been spending on lunches with co-workers, trips to Home Goods, coffee subscription boxes, or any number of other things.
Once you know where your money is going, you can use your budget to help you cut bad habits and form better ones.
3. Helps you set priorities
You probably have multiple financial goals, and it can be difficult to figure out what you should tackle first. Should you pay off your student loans or start saving for retirement? Is it okay to save for a cruise or should you double up on credit card debt payments?
Making a budget helps you see the big picture of your finances more clearly so you can make good decisions about what’s most important and where you should focus first.
4. Lets you prioritize saving and investing
Your “I’ll save whatever’s left at the end of the month” strategy is doomed to fail. It’s a much better idea to use a budget to help you prioritize saving and investing by putting aside a planned amount every month. This can start to mold your money mindset and prioritize saving and invest first, before doing anything else with your income.
5. Ensure you get control of debt or avoid future bad debt
Debt management is an important part of your budget. With a detailed spending plan, you can prioritize paying off existing debt and avoid taking on more debt than you can afford to cover.
6. Helps you be prepared for unexpected emergencies
Unexpected expenses are a fact of life. At some point, your car will need repair, your kid will break an arm on the trampoline, or your air conditioner will stop working. Good budgets include putting aside money for unexpected emergencies so you can have peace of mind knowing you’re prepared financially for whatever comes your way.
7. Budgeting helps your family talk about money
I recommend involving your family in your budgeting process. When everyone understands your goals and expenses and agrees to a spending plan, family money conversations become less awkward.
For example, if your kids know you’re saving for a trip to Disney World, there will be much less conflict over skipping a meal at a restaurant instead of eating at home. Similarly, if you and your partner have worked through the numbers together and agreed to prioritize saving for a down payment on a house, it will be easier to decide whether or not to make other purchases.
If a conflict about money does come up, a budget can help keep things calm by providing a factual framework for discussion about goals and accountability.
8. Can decrease future financial stress
When you’re living paycheck to paycheck and wondering where your money is going every month, the future seems scary. Budgeting includes planning for your present and your future so you can look forward to what comes next for you.
Instead of crossing your fingers and hoping you’ll be able to one day retire, pay off your house, or scrape up enough money to pay for college — you can use your budget to get prepared. By planning and putting aside money for those expenses now, you’ll avoid financial stress in the future.
9. Increases your financial literacy
Embracing budgeting introduces you to the larger world of personal finance. You’ll soon be familiar with things like compound interest, high-yield savings accounts, and different types of retirement accounts. Your increased financial literacy will help you make better financial decisions for your family.
10. Enables you to track financial goals
If you’re like most people, you enjoy seeing the results of your hard work. Reaching financial goals like saving for a down payment, funding a dream vacation to New Zealand, paying off credit card debt, or saving your first $100k can be a long process.
Budgeting helps keep you going by enabling you to track your progress towards your goals and see how much closer you get every month.
11. Prevents money mistakes from snowballing
Everyone makes mistakes, but an impulse buy here or a shopping spree there doesn’t have to completely wreck your finances. One of the best benefits of budgeting is that it helps you quickly make course corrections and get back on track after money mistakes.
Budgeting Tools To Help You Win With Money
Technically, you can make a perfectly usable budget with a pencil and some paper, but I recommend checking out these helpful budgeting tools to make budgeting easier.
Create your own spreadsheet
A basic spreadsheet works just fine as a budgeting tool if you don’t mind data entry. To get started, create budget categories for your monthly income and expected expenses. Don’t forget to include annual expenses and any savings goals. To keep track of things, you’ll need to enter your spending every month and compare it to your plan.
Personal Capital is meant for investors, but it works as a budgeting tool, too. Use it to connect and keep an eye on your bank accounts, credit cards, loans, and retirement accounts.
Some of the most useful features are quick snapshots of your most recent transactions, breakdowns of your monthly spending by category, and a net worth tracker. Plus, it’s free to use! Learn more and sign-up here.
Tiller is the budgeting app for people who love spreadsheets but hate manually entering numbers. Once you link Tiller to your bank accounts, all your money transactions are automatically transferred to a Google Sheet. You can use Tiller’s budgeting templates or set up your own with custom categories and time frames.
There’s also a handy debt snowball spreadsheet to help you pay off debt as efficiently as possible. To top it off, you’ll receive a daily email summarizing all your transactions.
Savology is a great option if you want help crafting a budget in the context of a larger financial plan. The platform offers a free comprehensive financial plan including a big picture financial report card and a customized list of action items for you. As part of the package, you can use their free budgeting tool to track your spending.
You Need A Budget (YNAB)
YNAB is based on the zero-based budgeting system, which means your budget includes a plan for every dollar you earn. You can use the app to set goals, create custom spending categories, and prioritize savings goals. By connecting your bank accounts, you can also easily track your spending. Membership includes access to additional resources such as budgeting workshops.
Don’t Let Budgeting Rule Your Life
As you can see from above, there are plenty of amazing benefits of budgeting that you should not ignore starting one for you or your family. However, it is up to you how in-depth or simple you want to make yours.
The other thing to keep in mind is that you also don’t want to let your budget completely rule your life. It’s about finding a solid balance of how much time and effort you will put into it.
But you want to be careful that you don’t get lost in the numbers completely, pinching every penny, and spending hours tweaking small things. That might not be you, but for some people, it can become an addictive trait to focus too much and continually tweak small items, instead of working towards the bigger financial picture.