Think you don’t need a budget? Think again. I’m often asked, Why is budgeting so important? Today, I’m going to give you 10 reasons why budgeting is vital to your financial and mental health.
But first, a little backstory:
For the longest time, I fought the dreaded “B” word. I hated the idea of being restricted to spending $200 on groceries (and having to put stuff back when I went over). I also disliked having to say “no” to my husband and kids whenever something they wanted didn’t fit within the budget.
Unfortunately, more and more often, there was too much month left at the end of our money. Increasingly, my husband and I began to argue about where all the money was going.
The thought of money (particularly the lack of) started keeping me awake at night.
I knew something had to give. So, I tentatively dipped my toes in the budgeting pool. Now, years later, I wonder what took me so long! I can honestly say that learning how to create a budget motivated me to (finally) get my financial shizzle together.
What is the purpose of a budget?
The number one purpose of a budget is to put you in control of your money. A budget can help lift you out of the paycheck to paycheck cycle and firmly place you on the path towards financial success.
3 main purposes of a budget:
- To gain control of personal finances
- Plan for long-term financial goals
- Identify areas of over (or under) spending
What’s a budget?
Put simply, a budget is a spending plan. It allows you to be intentional about how you spend your money.
Is budgeting just for number nerds or large corporations? Nope…even people who hate numbers will benefit from setting up a personal budget.
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Why is budgeting important?
Budgeting is important because it helps you identify and achieve your financial goals. If you want to get out of debt, be ready for emergencies before they happen, and build wealth, budgeting can help.
Budgeting is important not only for good financial health, it can also benefit your physical and mental health.
Imagine, no more sleepless nights caused by worrying if you’ll have enough money in your bank account to make it to the end of the month.
Fewer arguments with your spouse? Yes, please! Having monthly budget meetings with your significant other will help the two of you get on the same page when it comes to your finances. Thereby decreasing the number one topic most couples argue about.
According to a recent study by U.S. Bank, only 41% of those polled admitted to having a budget.
- The Total Money Makeover: A Proven Plan for Financial Fitness
- How to Stop Living Paycheck to Paycheck: A Proven Path to Money Mastery in Only 15 Minutes a Week
- Tiller Money– Easy-peasy, done-for-you budget spreadsheets for less than a fast-food meal.
- Ibotta– Free cash-back app that saves you money on groceries and everyday purchases.
- Clever Fox Budget Planner
The importance of budgeting for retirement
Studies show that a shocking number of Americans (33%) have little-to-no money saved for retirement.
Which suggests that the majority of Americans do not realize the importance of a budget.
Top 10 Reasons Why Budgeting Is Important
1. A budget puts you in charge of your money
I don’t like being told what to do. Do you? However, if you’ve been living without a budget, you are inadvertently letting your money boss you around!
Without a budget, Abe, Andrew, and Benjamin are in charge. They’ll come and go as they see fit without a second thought to your financial goals.
Dave Ramsey says to give every dollar a name. I don’t know about you, but I’d rather name my dollars ‘Debt-Free’, ‘Early Retirement’ and Financial Security’ instead of ‘Regret’, ‘Guilt’, and ‘Financial Bondage’! Can I get an “amen”?
2. Living on a budget keeps you from buying stuff you don’t need
How many times have you walked into a store intending to purchase one item and ended up walking out of the store with a carload?
Good news! Living on a budget will keep you from making impulse purchases which you will regret later on.
When you have a budget, you are forced to stop and think about each and every purchase you make and question how that purchase fits into your spending plan. If it doesn’t, you can leave it in the store…where it belongs.
3. Sticking to a budget prevents overdrafts
I don’t know why banks won’t just let you spend money that isn’t in your account. I mean, really, who do they think they are? Did you know, the average cost of an overdraft is $35? What’s worse, most overdraft fees are a result of purchases totaling $24 or less!
I don’t know about you, but I think I’d rather the bank just deny the purchase rather than putting it through and charging me $35 for the privilege. But…I digress.
However, if you have a budget in place (and are sticking to it) you already know how much money you have available to spend. A budget can stop those nasty banks from trying to take your hard-earned money away from you.
4. Having a budget helps you get along better with your significant other
Here’s a not-so-fun fact: 35% of couples argue about money on a regular basis. And don’t even get me started on the rise of financial infidelity!
According to a recent poll, 1 in 5 Americans who are in a relationship think it’s fine to spend $500 or more without telling their significant other. Of the respondents, 6% actually have secret bank accounts and credit cards.
I can’t even begin to stress how important it is for couples to openly and honestly communicate when it comes to all things money-related. I spent far too long in my own marriage excluding my husband from the budgeting process. Doing so only ended up creating confusion, resentment, and anger between us.
These days, even though we don’t always see eye-to-eye, we not only have a budget, we also regularly connect with each other in order to discuss our family’s budget.
5. Living on a budget reduces stress
I don’t particularly care for stress. Who does? More importantly, I NEED at least 8 hours of uninterrupted sleep per night or I am a bear the following day.
These two things (stress/lack of sleep) ended up being the final straw when it came to my aversion to embracing a budget.
Now, I won’t say that my money-related stress has completely disappeared, but it has significantly decreased since I began putting a plan for our money on paper.
Did you know that 30% of Americans report being ‘constantly’ stressed about money? The good news is, you don’t have to be one of them!
6. Following a budget helps you pay off debt faster
Think about it:
Living on a budget enables you to be laser-focused on spending less than you make. If you’re spending less than you make, you will have more money to throw at debt. This means you have the opportunity to get out of debt much faster than someone who’s living without a budget.
According to a recent study: more than 189 million Americans have credit cards. The average balance on those cards totals $8,398 per household.
7. A budget keeps you focused on your goals
Let’s face it, we live in a world where busyness and distractions are everyday occurrences. Wouldn’t it be nice if you were actually in control of at least one aspect of your life?
If you set a goal to create an emergency fund, a budget can serve as a daily reminder of this important goal. Without a budget, life’s daily distractions have a way of…oh look, a squirrel!
8. A budget helps you kick Murphy to the curb
Does it seem like every month something else pops up and derails your budget? Dave Ramsey likes to call these ‘Murphy visits’. A Murphy visit is basically Murphy’s law, which states that if something can go wrong, it usually will.
Some examples of a Murphy visit include:
- Your hot water heater goes out and you need to replace it
- The cat swallows a (fill-in-the-blank) and needs to go to the vet
- Your dog swallows a (fill-in-the-blank) and needs to go to the vet
- Your kid swallows a (fill-in-the-blank) and needs to go to the emergency room
- On the way home from work, you run over a nail and need to call a tow truck
A visit from Murphy is simply a budget-buster in disguise.
You can eliminate budget-busters by:
- Setting up an emergency fund
- Learning how to budget
- Living within that budget
9. Living on a budget encourages you to save money
Wanna get motivated to build a rainy day fund fast? Start with a budget. Seriously, once you start spending time with your money on a regular basis, it will become so much harder to part with!
Especially if you utilize the cash envelope method. Studies have shown that we tend to spend more when we shop with cards versus cash.
10. Living on a budget can motivate you to increase your income
I can personally attest to this point. My husband and I never would have been able to pay off over $50,000 in credit card debt (during a recession) if it weren’t for the fact that, (after finally getting on board with budgeting), I sat down, put pen to paper, and realized if we were ever going to move our financial needle from red to green, I needed to find a way to increase my income.
The way I did this was by starting a side hustle. My side hustle of choice? Blogging. But that’s a story for another day.
I hope I’ve convinced you why budgeting is important. While in the short-term, living on a budget can be hard, in the long run, having a spending plan just flat-out improves the quality of your life.
Most importantly, sticking to a budget helps you live on less than you make, which is the (not-so-secret) formula for building wealth.