The Benefits of Budgeting

Budgeting is one of the first and most important financial habits you should adopt.

Why? Well, until you have a budget you never really know exactly where you stand with your money.

Budgeting can seem overwhelming, particularly if you’ve never done it before.

But there are a whole host of benefits of budgeting and reasons why you need to get started.

What is a Budget?

A budget is a spending plan based on your incoming money and your expenses.

It details all the financial transactions you can expect in a time period.

Usually you will budget monthly, or perhaps payday to payday depending on your wage cycle.

But simply put, a budget is a plan for your money.

What are the Benefits of Budgeting?

It gives you financial clarity

Once you’ve created your budget, you’ll be able to see your current financial situation.

Is there money leftover once bills have been paid? Or are you living beyond your means?

Having all your income and expenses laid out in front of you, you’ll be able to see where you need to make cut backs, where you are overspending and where your spare money is going.

It identifies overspending

Without a budget, you might not realise just how much you are spending in one area or another.

For example, you might buy a lunch everyday at work for £3. £3 is not much, right? But spend it 5 days a week, 52 weeks a year and suddenly it’s quite substantial!

It reduces stress

When you are clear about your financial situation – whether it’s good or bad, you can deal with it.

Burying your head in the sand and ignoring your situation, not checking your bank balance and hoping for the best… it’s a very stressful way to conduct your life and could plummet you even further into financial difficulty.

It helps you achieve your goals

Once you can see how much money you have left each month, you’ll know how much you can assign to your big financial goals.

Without a plan for the money that’s left over, it’s easily frittered away.

Budgeting allows you to give that excess a purpose rather than it being swallowed up by day to day miscellaneous spending.

It makes you more self aware

When you are budgeting, you become more aware of the ways in which you spend money.

Assigning a budget amount to a variable expense such a food shopping, makes you more aware when you are spending so you are less likely to make impulse purchases and go over budget.

It’s good for future planning

If there are plans you want to make – maybe going on holiday or saving for a house, having a budget allows you to easily see where you can make cutbacks and if you need to increase your income as well as reducing your expenses.

If it’s a short term goal, you could significantly reduce a budget category this month and put the money towards something else, then increase it back up once the event has taken place.

Summary

Budgeting has many benefits, and we have touched on just a few here.

If you’re not already budgeting, hopefully this has given you the motivation to get started.

 

 

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