Since budgeting allows you to create a spending plan for your money, it ensures that you will always have enough money for the things you need and the things that are important to you. Following a budget or spending plan will also keep you out of debt or help you work your way out of debt if you are currently in debt. In my opinion, have a definite plan to pay off your debt first as you plan for other things. Let the payment of the debt be a priority.
Budgeting is the most basic and the most effective tool for managing your money. Yet, most people avoid doing it because it is work. Well, nothing works on its own except you put a plan around it.
A budget enables you to allocate your funds based on your priorities. It is good to know your financial state and work within its ambits. The choices you will make will be engendered from that plan.
The drudgery of creating a budget weekly, monthly or yearly pays off especially when it becomes habitual. Let me list the benefits.
1. It Helps You Keep Your Eye on the Prize
What are your financial goals? How do you intend to achieve them? well, a budget helps you figure out your long-term goals and work towards them. Not eery shiny object or hot deal needs to be keyed into. If you just drift mindlessly and aimlessly through life, spending without a plan with the hope that the money will always be there.
A budget forces you to map out your goals, save your money, keep track of your progress, and make your dreams a reality. It may hurt on the short term when you realize that your budget cannot afford the latest music gadget of your choice but when you remember that you are saving towards the birth of your first child and you need to move to a new apartment in 6 months time, that gives perspective to your delayed gratification.
2. It Helps You Stay Organised
Nothing messes one up, like not knowing what you spent the last NGN100,000 on or why there is a deficit that cannot be accounted for. By dividing your money into categories of income and expenditures, a budget makes you aware which category of expenditure takes which portion of your money. And which stream of income you should focus on the more. With that, it is easy to make adjustments and take dressing.
3. Provides The Big Picture Overview
When you budget and take a “big picture” view, you will see potential money problems in advance, budget deficits and be able to make adjustments. If you need a take a debt to bridge the shortfall, so be it. But at least it is part of the plan. Taking debt is not necessarily evil if the debt is necessary. More so, budgeting shows you how much a debt load you can realistically take without being stressed or if taking the debt load is worth it in the first place.
4. It Helps You Prepare; Even for Emergencies
Life happens. Things fall out of order. Financial turmoil sometimes come unaccounted. Illness, loss of business, layoff etc can destabilise even the best laid out plans. If your budget had a place for emergency plans, then you can draw from it.
Your budget should include an emergency fund that consists of at least three to six months worth of living expenses. This absorbs some shock before you can find your feet again or recover. Build an emergency plan into your budget, set realistic goals and start small. Little drops make the ocean
5. It Ensures You Spend Only Your Money
In these days of easy loans especially when you work for a blue-chip or multinational, you may start spending money that you have not earned yet. Don’t feel happy that credit is easily extended to you. You should be wary. Of course, there are times that you need those live lines, but those are exceptions. We cannot live our lives based on exceptions.
If you create and stick to a budget, you’ll never find yourself in this precarious position. You’ll know exactly how much money you earn, how much you can afford to spend each month and how much you need to save. Sure, crunching numbers and keeping track of a budget isn’t nearly as much fun as going on a shameless shopping spree. Caveat Emptor….I love to shop but I always plan for it.
6. It Helps Shed Light on Bad Spending Habits
Building a budget forces you to take a close look at your spending habits. You may notice that you’re spending money on things you don’t need. Do you honestly watch all 500 channels on your costly extended cable plan? Do you really need 30 pairs of black shoes? Budgeting allows you to rethink your spending habits and re-focus your financial goals.
7. Enables Financial Dialogue With Your Spouse
If you share your money with your spouse, family, or anyone, a budget can communicate how you use money as a group. This promotes teamwork on working for common financial goals and prevents conflict on how money is used. Creating a budget in tandem with your spouse will avoid conflicts and resolve personal differences on how your money is spent. Budgeting teaches family members spending responsibility and accountability.