6 Benefits of Budgeting (Plus a Budget Example)
Okay, so most people hear the word “budget” and automatically have negative thoughts and feelings about it. When I start out by asking clients what they think of when they hear the word “budget,” they usually use words like “restraint” or “restrictive.”
But here’s the thing. I would argue that none of these things should come to mind when we think about budgeting. I don’t know who was the first person in history to throw shade at budgeting and then convince the rest of us to hop on the budget-hating bandwagon, but let’s clear things up.
Having a budget is freeing! It helps you to have your stuff together, so you can live your best life. And I’m not just saying that because I’m, admittedly, a personal finance nerd. Let me prove it to you.
What is a budget?
First, let’s talk about what a budget is exactly.
Put simply, a budget is when you make a plan for your money. You think about the income you expect to have in the coming month. Then, you decide, ahead of time, where you’d like each of your dollars to go. This part alone can be empowering and freeing. You decide where you want your money to go and how you want it to be used.
A budget is not a bunch of limitations on how you can spend your money. Instead, it’s a plan, where you look at what money you’ll have coming in and decide what things you need and want to spend it on. You make your budget fit your needs, your lifestyle, and your goals.
After planning out your budget ahead of time, the next important piece is to track your spending throughout the month. The name of the game is to be mindful of the amounts you said you wanted to spend in each area, so that you don’t overspend. To learn more about strategies for tracking your spending, click here.
What are the benefits of budgeting?
Here are some of the big ones:
1) Organization: I have had many conversations where people didn’t realize how much they even made in a month or had a really inaccurate idea of how much they spend each month...or both. Having a budget helps you to be so much more aware of how much you make and spend. Once you have a better understanding of these two things, it sets you up for this next big benefit of budgeting…
2) Taking Control: When you know how much you make and how much you’ve been spending, you’re in a much better position to take control of your money. When you don’t have a clear idea of how much money is coming in and going out, you’re much more likely to end up wondering, “Where did all my money go?” You know you got paid, but one day you check your bank account and you just have no idea how your balance got so low. This is a red flag that, although you’re the one spending it, you’re not fully in control of your money.
Because with a budget you have a plan and are tracking your expenses, there are no more unpleasant surprises when you check your bank account. If you need money to pay for something, you have it because you know you haven’t unintentionally or absent-mindedly spent all your money. Look at you, being all in control of your money and stuff!
This leads me to the next major benefit of budgeting...
3) Ensuring Everything Is Taken Care Of: So again, when you budget, you’re thinking, in advance, about the money you expect to make next month. Because you’re actually thinking about what you’re going to do with your money, you get to make sure you make room for all the categories that are important to you.
For example, you’d make sure you budget for all of your bills. But then, as you’re thinking about it, you also realize your motor vehicle taxes are going to be due in this upcoming month. You work that into your budget to make sure that gets taken care of. Maybe you also plan on going out with friends a few times in the month, so you factor that into the budget as well. And because things pop up unexpectedly, you might even add in a “miscellaneous” line item in your budget and plan $100 (just as an example) towards that.
How great will it feel to walk into the new month with your head held high, confident that everything is taken care of?
4) Peace of Mind: Money is a source of stress, worry, anxiety, or frustration for so many people. This can be caused by a bunch of different things, including:
Feeling like you don’t have enough money
Not knowing how all your money seems to disappear
Being stressed out by loans and other debts piling up
Feeling guilty about how you spend your money
Never seeming to be able to “get ahead”
And so much more
At the core of many of these issues is not having a solid plan and strategy for your money. When you budget, you get to experience peace of mind. Do NOT underestimate how powerful that can be! So many money insecurities fade away when you know what you have and you have a system for how to cover all the things your lifestyle entails.
A friend once told me she had lots of anxiety about having enough money to make ends meet each month. She was stressing herself out trying to think about how to make a second job work in her already busy life. Then, I helped her to start budgeting. In the process, she realized she could make her current income go a long way when she actually took a look at the numbers and organized where her money went. Budgeting made such a huge difference that she didn’t need to get that second job after all! And what a difference something like that can make in your life!
5) Avoiding Overspending and Debt: Listen, nobody likes debt. Some may be more bothered by it than others. But no one enjoys owing other people money, whether it’s a friend, a family member, a credit card company, or a bank.
When you don’t have a budget where you’re tracking your spending, you’re more likely to end up spending more than you make. Swiping credit cards makes this especially easy to do. Then, before you know it, that credit card interest has your balance looking crazy! And it will just keep growing.
Having a budget changes all that. Knowing what you have and making a spending plan based on what you actually have, helps you not to (often unknowingly) spend more than you have. That also means you get the freedom of avoiding debt.
Start budgeting so you can stop owing others!
6) Being Better at Saving: Most of us have at least one thing we want that costs significantly more than what we can afford right here and now. Maybe it’s a house. It could be a vacation getaway you’ve been dreaming about. Maybe it’s a new car you want to buy outright. These things require some level of savings.
Guess what? That’s where budgeting comes in for the win. It’s so much easier to stay focused and consistent about saving when you plan for it by factoring it into your budget each month. Instead of just randomly putting aside a little here and there, you take a look at your money, and maybe you realize it’s doable to plan to put aside $300 each month (as an example). The budget even holds you more accountable for actually following through and saving that much each month. It hits you that you’ll have $1,800 saved in 6 months, and suddenly that dream vacay is looking less like a dream and more like a just-around-the-corner reality!
A Budget Example
So, maybe you’re like, “She says a budget is just a plan for your money, but what does that even look like?” Here’s a simplified example:
Let’s say it’s April, and since budgeting works best when you plan in advance, Taylor’s making a budget for May.
Based on her paychecks, she knows she’s going to get paid twice in May. Each paycheck will be for $1,300 of take-home pay. That’s a total income of $2,600 for the month.
Then, she thinks about all the different categories of spending she’ll have for the month of May. She includes those categories in her budget.
Once she does this, she decides how much she wants to put towards each of those categories. She starts with necessities and bills. Then, with the remaining money, she plans how much should go into the remaining categories.
A few things to note about this example:
This budget example is simplified. Typically, a budget includes more categories than this. The point here was just to give a quick, easy-to-follow example of what it looks like to determine categories and budget amounts.
This sample budget is meant to demonstrate the amounts that Taylor plans for each category. It does not show the actual amounts she ends up spending. But a fully functional budget would include a record of how much is actually spent as well.
Note that every dollar she will make is accounted for. The best way to be fully in control of your money is to tell all of your dollars where to go.
All of these categories and numbers are hypothetical. Your categories depend on your circumstances. Your dollar amounts depend on how much you make and how you choose to prioritize your categories.
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Conclusion
Budgeting is not your enemy. It’s your friend. When done right, it helps you have a plan for your money, and it helps you stay on top of your money. This means you’re more organized and in control. It helps ensure that everything that matters to you is taken care of each month. Your stress, worry or anxiety gets replaced with peace of mind. And budgeting makes it easier for you to kick debt to the curb and save towards the things that are important to you.
I mean this with all sincerity: If you want to improve the quality of your life, you should start budgeting right away!
What’s an example of how budgeting has improved your life? And if you haven’t started budgeting yet, what’s one thing you’re hoping it will improve? Let me know in the comments below!
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