6 Reasons Why You Need A Budget

A budget is just like politics – everyone has an opinion whether or not we all agree. Although we all may have our different budgeting methods, one thing is clear – a plan for your finances is absolutely necessary. If you want to gain any sort of financial freedom, a budget is essential.

Still not convinced? Here are 6 reasons why you need a budget.

A budget sets a plan for your money.

When you have a working budget, you are making a plan for your money. Have you ever gone to the grocery store, without a list thinking I’ll just be in and out, I just need one thing? However, an hour later, you walk out with a cart full of groceries, $100 poorer, thinking, “What happened?” You didn’t have a plan. The same thing happens with our money when we don’t have a plan. We pay our bills, buy our groceries, spend money, and at the end of the month ask ourselves, “where did all my money go?”

If you have a working budget, you can tell your money what to do and where to go. You make a plan and know your money can cover it. You have the freedom knowing you are living within your means, and not worrying about putting food on the table or paying your bills. If you are in a season of financial struggle, I encourage you with one task. Write your working budget, make cuts where you can and remember that this is a season of struggle. Pay for the essentials first such as food, shelter, and clothing.  You can worry about the rest later.

A budget helps you prepare for emergencies.

When you have a budget, you have a contingency plan for (almost) every possible financial outcome. You automatically build an emergency fund for the true, unexpected emergencies (flat tire, major home appliances, flood, fire, etc.). Also built into your financial plan are the more predictable emergencies (car repairs, regular home maintenance, health care costs. etc).  These predictable emergencies are things you know you will have to pay for eventually, you just don’t know when or how much. When you build a working budget, you have a plan in place when these expenses arise, and how you will cover them.

A budget shows your spending habits.

Developing a budget shows ALL of your spending habits, both the good and the bad. This can be helpful in determining what your habits are when it comes to spending money. Are you a spender or a saver?  Are you a compulsive spender, an emotional spender? You might think you don’t spend very much on eating out, but when you break down your costs, you find you spend a lot more on lunch out with your coworkers. Maybe analyzing your vacations helps you realize that you actually spend more than you allocated because you put it on your credit card instead of bringing cash. Regardless, understanding your habits with money can lead to you changing them and creating new ones within your lifestyle.

 

A budget allows you to achieve your financial goals.

Creating a budget is one thing; living within it is another. In order for your plan to work for you, it has to help you reach a future goal. Whether that is paying off debt, saving for a house, or saving for retirement, living within your expenses has to be purposeful for you or you won’t follow it.  The most important thing to keep in mind is that your financial plan has to have a purpose. Whatever that purpose is, let that be your driving focus in all your financial decisions.

A budget gives you freedom.

A budget doesn’t have to be chains around your neck, preventing you from spending anything. It is quite the opposite actually. For the spenders, it gives you the freedom to spend money within your means. You still have to be accountable for your spending, but there is flexibility in knowing there is a plan in place. And for the savers, there is equal freedom in knowing the money is designated appropriately. There is no need to worry about where the money is going because the budget is set-up to have your money work for you. It also is set up to give you the freedom to spend when you need something, like a new pair of shoes or work clothes. You don’t have to worry when making those big purchases because you’ve already planned for them.

A budget removes the financial stress.

When you set a plan for your money, it takes away the stress of your finances. When unexpected bills come up, you have a system in place to cover them. Your car breaks down and you need to make repairs, you have an emergency fund in place to cover it. Once you have a financial plan in place, there’s no longer a need to worry about your money. The budget has you covered! One important thing to remember here is, your plan is not something that can go unmanaged. Your working budget needs to be updated regularly, and your accounts maintained on a monthly basis. Whether you use cash envelopes, checking/savings accounts, or a combination of the two, make sure you are maintaining them on a regular basis.

So there you have it! These are the top 6 reasons we’ve found to have a budget. Whether you’re just starting out, been budgeting for most of your life, or convincing someone else to create their own financial plan, these are the most logical reasons we can find to support a personal budget.