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Why is Making a Budget So Important?
Motivational speaker John Maxwell once said, “A budget is telling your money where to go instead of wondering where it went.”
Budgeting is one of the single most effective tools for money management. But why is it so important? What are the benefits of budgeting? And why should you care?
Let’s take a look.
#1: Know What You Buy
Before you sit down to make a budget, you might not be aware of how many different types of things you need to buy.
Most people are aware of the items that cause them to take out their wallet on a daily or weekly basis: groceries, gasoline, coffees at Starbucks, restaurant meals with friends.
But many people are unaware of the items that they only pay for once or twice a year, such as holiday gifts, charitable donations and car insurance.
The awareness weakens even more when it comes to items that we only pay for at random intervals, such as fixing our roof, replacing the dishwasher, putting new tires on the car, or paying an expensive veterinarian bill.
A budget helps you become aware of all of these different types of expenses. These worksheets provide a good list of the many expenses that creep up over time.
#2: Set Your Priorities
As I’ve said many times on this website, budgeting is the art of aligning your spending with your priorities. That’s why there’s no single “best” way to design your budget — everyone’s priorities are different.
Creating a budget can help you articulate those priorities. Would you rather send your children to private school, or have enough money to take them to a foreign country during the summers? Would you rather pay off your mortgage early, or have a larger retirement fund? Would you rather donate 10 percent of your money to charity, buy your next car in cash, or remodel your kitchen?
You can’t purchase everything. Every decision requires a trade-off. Creating a budget helps you think more deeply about which trade-offs you’re willing to make.
#3: Initiate Conversations
It’s hard to be on the same financial page as your spouse. After all, you and your spouse are going to have different priorities. If your children are old enough to have a voice in household financial matters, it’s even harder to get everybody on the same page.
Creating a budget can help you, your spouse, your children and any other interested parties have a starting point for a discussion about the financial choices you’ll make.
These conversations will allow you to make compromises and decisions about the financial road your family will take. Your budget will then become your “action plan” for achieving these goals.
#4: Reach Your Goals Faster
Does it seem like you can never get ahead? Just when you’ve made some headway with your savings, some sudden event pushes you back to square one. Your car breaks down. Your kid throws a baseball through a window. You need to get your wisdom teeth pulled out, and insurance will not cover the bill.
A budget can help you plan for these inevitable items. It can also help you get ahead in spite of these surprise expenses.
This article on budgeting for unexpected expenses offers plenty of information about how you can cope with life’s curveballs– and still remain on solid financial footing.
You Control Your Budget
A lot of people tend to overlook the benefits of having a budget because they’re worried that they’ll be too restricted by one.
Just remember: you control your budget, your budget doesn’t control you. It helps you gain control over your money and allows you to live a more fulfilling life. Isn’t it time you put your money where it counts? Your budget can guide you there.
Ahmad Faishal is now a full-time writer and former Analyst of BPD DIY Bank. He’s Risk Management Certified. Specializing in writing about financial literacy, Faishal acknowledges the need for a world filled with education and understanding of various financial areas including topics related to managing personal finance, money and investing and considers investoguru as the best place for his knowledge and experience to come together.