Most people find budgets boring and restrictive. But I think the opposite is true! – Budgets are fun, empowering, and they enable you to achieve both long term and short term financial goals. There are way more budgeting benefits than meet the eye.
So, if you will, please put aside for a moment all your preconceived hangups about boring spreadsheets and mundane money tasks. Indulge me while I highlight some of the major benefits that budgeting can bring to people’s lives.
1. Puts you in control of where your money goes
How many times have you woken up at the end of the year and thought, “where did all my money go!?”
Well, when you track your spending and budget properly, you know exactly where all your money goes. Better yet, you get to direct where all your future money gets spent.
Making a budget is kind of like giving every dollar you earn a specific job. Some dollars get assigned to pay rent, other dollars to buy your food, and some are in charge of providing you fun and entertainment!
And since you are the Chief Budget Maker of your life, you get to control the categories, dollar amounts, and timeline of your spending.
Personally, my wife and I have given ourselves a massive travel budget this year. We want to spend our money on trips and experiences we will remember forever!
One category we try to minimize as much as possible is car expenses. Other than getting us from point A to B, those metal money pits provide no additional value to our lives. We prefer to spend our dollars elsewhere, so we budget accordingly.
All in all, a customized budget puts you in the driver’s seat. It’s about making a plan before dollars are spent, versus playing catch-up and wondering why nothing is left.
2. Helps you be aware and mindful when spending
Nobody likes constructive criticism when they first hear it. It’s a blow to the ego, and makes you feel self conscious.
But eventually, after a few days of reflection and processing, you realize that constructive criticism is actually super helpful! Knowing your weak spots is the first step to fixing them and it’s how we get better and grow smarter.
Likewise, a budget is a akin to a financial critic! It dishes out criticism month after month, making you aware of weak spots in your money plan. And if you confront those money weaknesses, it gives you a faster path to getting better with money, making progress, and growing wealth!
For example, if you’ve massively blown through one of your budget categories, it can sting when you first look at those numbers. “I spent WHAT on restaurants last month? I don’t even remember eating out that much!”
But accepting that harsh reality can make you more savvy and mindful when dining out moving forward. Meal prepping ahead of time, finding cheaper happy hours, or even pre-game drinking at home before going out are all things you might try in order to reduce your spending in that area. Not only will you correct overspending, these are actually lifelong frugal habits that can save you a massive amount of money over time.
Simply put, budgeting opens your eyes to your weaknesses and strengths, softly nudging you in the right direction.
3. Plan for and achieve financial goals
As you design a budget, you’ll create line items for saving towards long term and short term goals. And if you stick to those saving plans, one of the major budgeting benefits is that you’ll actually achieve those goals!
For example, my wife and I had a goal last year to buy a new fridge (we wanted one of those fancy french door ones with the freezer on the bottom!). So we made a line item in our monthly budget to save $100 per month in a sinking fund. Lo and behold, after 14 months of saving we had a cool $1,400 set aside to shop for our dream fridge. We were able to purchase it in cash, without disrupting any of our other finances.
It’s the same with long term saving goals. Like saving up for a house, building a fat retirement nest egg, or helping your kids get a financial head start in life. Putting those dollars aside each month means achieving anything you dream of in life. Pretty cool, huh!?
Pssst! If you haven’t done so, here’s how to open a Roth IRA. It’s one of the “lowest hanging fruit” tax-advantaged retirement accounts that we recommend people prioritize each year.
4. Be more prepared for emergencies and setbacks
You’ve probably read the stats – only 2 out of 5 Americans are prepared to cover a $1,000 emergency expense. That means 60% of folks need to take out a loan, borrow money, or frantically shuffle their finances around to get out of a troubling money situation.
I don’t know about you, but skating on thin ice every day makes me really nervous! I hate debt and will avoid it at all costs.
There are 2 ways budgeting helps folks prepare for emergencies:
- First, building an emergency fund is quite easy when you proactively set money aside in your budget each month. Saving just $20 a week you’ll be able to build a $1,000 e-fund in less than a year!
- Next, if a larger emergency hits (like job loss or major health expense), having a bare bones budget can help you live lean for a while and cut non-essential expenses. Being able to quickly pivot your spending allows you to recover faster and get back to normal.
Emergencies happen to everyone at some point. It’s not a matter of if – it’s a matter of when. Being prepared and bouncing back quickly is one of the major benefits that simple budgeting provides.
5. Gives you confidence & peace of mind
I don’t want to get too political here, but how much do you trust the government right now? If you got seriously injured, do you think they would swoop in to pay your medical bills for you? Would they take care of your family? What if you reached age 65 and didn’t have much in the way of savings… Do you think your monthly Social Security payment at that time will be large enough to live comfortably on? 😳😳😳
Financial stress is no joke. Some of the most common money fears are never getting out of debt, not being able to make ends meet, and not having enough to retire.
But these can all be taken care of with basic budgeting! When you’re in the driver’s seat, you can feel confident about your financial future. You get a front row seat watching your debt getting paid down, your retirement accounts growing in value, while also being able to afford a fun and rich lifestyle in the present.
This is one of the most understated benefits of budgeting. Knowing your numbers through-and-through gives you peace of mind. You’ll be happier in retirement, and happier along the journey knowing money isn’t a constant unsolved problem in life.
We live in an awesome country. But the truth is if you leave your finances in the hands of other people, you can’t confidently say that things will work out in your best interest.
How to start a budget
If you aren’t budgeting currently, you might be wondering – what is the simplest way to start? Good news – we’ve written a complete guide to making a budget, listing several methods you can try.
For beginners, the 50/30/20 budget is a great starting point! You basically take your monthly income and divide it into 3 buckets:
- 50% of your income is slated towards needs (housing, car, food, bills)
- 30% is planned for wants (travel, entertainment, shopping)
- 20% is saved and invested (401k, Roth IRA, e-fund or debt paydown)
To make sure you’re on track, it’s important to track your spending. Using a modern app (like Empower, which is free) can save a lot of time on this front.
Speaking of apps, You Need A Budget (YNAB) is also a great all-in-one budgeting system. If you really need to get your finances under control, YNAB works wonders! You can try it for free, and students get an extended free trial!
The Bottom Line:
A budget isn’t about restrictions and limiting the fun in life. Rather, it’s a tool for liberation, allowing you to spend more on the things you value! The ripple effects of tracking your spending go way beyond just the dollars and cents. It’ll help you spend more mindfully and allow you to live more confidently and stress free.
If you haven’t started budgeting yet, it’s not nearly as complicated or boring as you may think. Start with a simple 50/30/20 plan, and after a while you’ll start to recognize and enjoy the benefits that budgeting can truly bring to your life.
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