8 Awesome Advantages Of Budgeting
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If you’re new to budgeting then it might seem a little bit overwhelming, particularly if you have accumulated a lot of debt or aren’t used to being completely in control of your finances.
However, there are plenty of advantages of budgeting, so while it may seem stressful at first, once you get the hang of things it should be much easier to keep on top of.
Why Do I Need A Budget?
There are lots of advantages of budgeting, the most obvious being that it’s a great tool for figuring out where you’re money is going each month. It forces you to look at exactly what you’re spending and what you’re spending it on.
From there, you can look at ways to reduce your outgoings, curb your spending and put extra money towards things that really matter to you and your family.
While some people think having a budget is restrictive, you can still spend money on whatever you like, provided it’s within your budget.
Before you start budgeting, it’s definitely worth spending a month tracking your spending and writing down everything that you spend. This will help you figure out how much spending money to give yourself in each of your spending categories.
While it can initially be tempting to massively cut back in areas you feel you’ve been overspending, this can also be a way to set yourself up for failure. Smaller reductions in spending over a period of time are much more effective.
You may also be surprised how much things like subscription services or other memberships costs. Reducing the cost of these by haggling or changing to a cheaper provider can be a way to save money without spending less on things you love doing.
Advantages of Budgeting – How To Get Started With A Budget
Here are some things you need to do when you start budgeting:
- Track your expenses for a month to see what you usually spend.
- Plot this against your income including any extras like benefits and side hustle income.
- Work out how much you want to spend in each area. While you might want to cut back massively in some areas, take it slow as huge changes can sometimes be unrealistic. Small steady steps often work better.
- Choose a budgeting method.
- Keep track of what you spend through the month then reconcile, adding any leftover towards savings, debt or other goals.
- Adjust your budget as needed each month to account for extra expenditure or increased income.
So, here are eight awesome advantages of budgeting.
8 Awesome Advantages of Budgeting
1. A Budget Tells Your Money Where To Go
Are you one of those people who always wonders where all of your money went at the end of the month?
If this is you then using a budget should help you identify what all of your money is being spent on.
Spending money on things you love and enjoy isn’t necessarily a bad thing, but a lot of people can be mindless when it comes to day-to-day spending. In particular, cheap clothing hauls and going to B&M and buying house stuff we don’t need are some of the worst culprits.
Allow yourself to do these things, but within an allowed spending limit rather than just spending however much you want, whenever you want.
One of the biggest advantages of budgeting is that it should show you money where to go, so for example, £100 to savings, £100 for eating out, £500 for the mortgage and so on. Using a bank account that helps you set up various spending pots, such as Monzo, can really help with this.
2. Advantages of Budgeting – A Budget Can Teach You Better Financial Habits
Once you’ve been budgeting for a while, it does start to become a habit. And it’s a habit that should have a really positive impact on your finances.
A budget can teach you how to:
- Save money at the beginning of the month, rather than saving whatever is left at the end (often people don’t have anything left which is why they don’t end up saving much)
- Carefully consider each purchase – if you’re trying to stick within a certain amount of spending, each purchase is more carefully considered. You find yourself asking whether you really need certain items rather than mindlessly buying whatever you want.
- Focus more on long term goals. When you have a good amount of money to save towards bigger goals each month, such as a house deposit, they can seem much more achievable.
- Save Sinking funds – these are small pots of money you pay into monthly that covered expenses like birthdays and Christmas.
- Be more in control of your finances and you know where your money is going and spot when anything is amiss. It can also help give you peace of mind as you build up savings and/or pay off debt.
3. A Budget Can Help You Pay Down Debt
Often, people start budgeting because they’re in a lot of debt and want to find a way to start paying it off.
Doing a concise audit of your finances, tracking your spending and then creating a budget is one of the best ways to do this.
When it comes to debt, people often bury their heads in the sand and are too scared or nervous to add everything up.
Creating a budget forces you to do this but it also gives you a much better sense of control over your money which in the long term is much better for your mental health.
When it comes to paying off consumer debt there a couple of methods you can use.
The Snowball Method – This method involves paying the minimum on all of your debts but putting any extra you can afford towards paying off the smallest debt. This is then repeated with the next smallest debt and so on until all are paid off. As each debt is repaid, you’ll have more money available to tackle the next one.
The Avalanche Method – This method differs slightly in that you pay off the debt with the biggest interest rate first, followed by the next biggest. This method will save you the most money in the long run as you’ll be eliminating high-interest debt first.
4. Advantages of Budgeting – A Budget Can Help You Save Towards Your Goals
A good budget can really help you save towards your goals, especially big goals such as money for a house deposit, wedding or to go travelling.
When we have lots of disposable income, it can be easy to get into the habit of spending a lot of that income. One of the most popular budgeting methods for those looking to save big chunks of money is the ‘Pay Yourself First’ method.
With this method of budgeting, you pay a large number of your earnings into your savings account at the beginning of the month. You then create a budget with the money that is left. Before doing this, you’ll need to track your spending so you can create a realistic budget.
This method works well for those who want to save and should be able to, but often find they can’t because they spend too much during the month, simply because the money is there. This isn’t the best budgeting method for those trying to pay off debt or who are currently living paycheck to paycheck.
5. A Budget Can Help You Invest In Your Future
If you don’t have big goals like saving for a house or wedding, what should you be saving your money for instead? Well, you could use any extra cash that comes from having a good budget in place to add extra into your pensions or for investing, either in stocks and shares or in the property.
While these both seem a little boring, they are both worth considering. For example, building up a passive income stream via dividends could help you to retire early. Adding extra to your pension pot will ensure a comfortable and more enjoyable retirement.
Even if you get to a point where you might feel like you don’t need to budget anymore as things are on track with your finances, looking to the future might help you regain some motivation. And of course, budgeting categories and amounts are never set in stone, so if you want to spend extra here and there you can absolutely do that.
6. Advantages of Budgeting – A Budget Can Help You Break Bad Habits
Another one of the advantages of budgeting is that some types of budget are really good for helping you break habits when it comes to spending.
For example, one type of spending people struggle with is using their debit card too much. As it’s a simple tap it can often feel like we’re not actually spending any money.
Cash budgeting (also known as cash envelopes) is a type of budgeting where you only use cash for your everyday spending.
So while your mortgage and other bills come out of your bank account, you remove the exact amount you need for any other spending, such as food shopping, eating out, takeaways and so on.
Once the money from each envelope has been spent, you don’t replace it or take it from another envelope. You also only take cash with you when you go out, so you’re not tempted to spend on your card and can only buy what you need to what you went out for.
This method makes you much more aware of what you’re spending and should help curb bad spending habits like going to the shop for milk and spending a tenner on food you don’t really need.
It can also help if you have an issue with online spending. If you find yourself constantly bombarded with emails about sales from fashion brands etc, hit the unsubscribe button, delete the apps and delete your card details from being remembered on your phone.
Doing all of the above should help with impulse spending. If you really feel the need to spend, try selling an item of clothing before allowing yourself to buy something new. This will help you assess whether you’re prepared to make the effort to get that item, rather than just buying for the sake of it.
7. A Good Budget Can Help You Build an Emergency Fund
If you’re trying to get out of debt, one of the biggest things that can be an issue is continually ending up in more debt due to unexpected expenses cropping up. Unexpected expenses are things like emergency car repairs, boiler breakdowns or white goods needing replacing.
Having money set aside for these problems so you’re not forced to end up getting into more debt is really important.
If you’re just getting started with budgeting to help pay off debts then one of the first things you need to do is start building up an emergency fund which should help you break the cycle of debt.
It might even be worth adding more money to your emergency fund than you put towards paying off debt to begin with, just so you have that buffer there, although it will depend on your circumstances. This post from The Money Advice Service takes a look at Debt vs Savings.
More about building an emergency fund can be found in this post.
8. A Bare Bones Budget Can Force You To Cut Back In Times of Need
Another of the many advantages of budgeting is that it can really help you cut back in times of need, such as when your income drops significantly and unexpectedly. This could be due to job loss, a change in government assistance or the loss of a partner who contributed heavily to your finances.
What is A Bare Bones Budget?
In times of desperate need, many people like to use a ‘Bare Bones Budget’. This type f budget cuts back on all non-essential spending and focuses solely on the most important day to day living expenses such as mortgage or rent, food and other household bills like water and electricity.
It cuts back on everything else including takeaways, subscription services, meals out, cinema trips and so on.
While it’s not something that really works in the very long term, it can be a great way to really cut back in times of dire need.
Awesome Advantages of Budgeting – Final Budgeting Tips
Finally, here are a few tips to help you manage your budget. One of the big advantages of budgeting is that it can be tweaked and changed to suit your circumstances. Some people like to change theirs monthly whereas others don’t feel they need to change things quite as often.
Budgeting can also help you if your income is unpredictable, as it can be adjusted each month depending on how much you’ve earned.
Use Sinking Funds – Sinking funds can really help with expenses that occur throughout the year such as Christmas, birthdays, car MOTs etc. Some people like to have separate pots for these while others have one big pot. Either way, it stops you needing to touch your savings or emergency fund for these things by allowing you to save a little towards them each month.
Mix Things Up – Not every type of budget will work for every type of person. You may find certain types of budgeting don’t work for you and that’s fine. There are lots of different ways to manage your money and you need to find one that works for you. This is one of the advantages of budgeting – you can change things up as you need to.
Budgeting Tools – There are loads of different budget tools out there – from spreadsheets to spending diaries and everything in between. Whether you use an app or pen and paper to budget it doesn’t matter, as long as you have a plan for your money.
Get Started – While getting started with budgeting can seem scary, you’ll thank yourself once you get going. It gives you so much more control over your money and will show you where you can save more and spend less.
Earn Extra – If you’re finding your budget isn’t covering your monthly spending then you could look at trying to earn some extra money. Earning extra can often make a bigger difference than cutting very small expenses. Ideas for this could include renting out a room, doing market research, pet sitting or setting a small side business such as a blog or Etsy shop. Additionally, you could take a look at this list of 58 unusual ways to make extra money.
Make Savings Hard To Get At – Making your savings hard to get at can be one way to stop yourself dipping into them willy nilly or using them for everyday things. Make sure they’re with a different bank to your current account and don’t keep your card in your purse. While they should be easy to access in an emergency, you shouldn’t easily be able to spend them day to day.
Celebrate Your Wins – Keep track of your achievements – whether that’s paying off debt, creating a full funded emergency fund or savings for something you’d usually put on the credit card – seeing how far you’ve come can really help motivate you for the future.
And there we have it. Eight awesome advantages of budgeting plus some extra tips are thrown in for good measure.
Budgeting is one of the best things you can do when it comes to your money – it gives you more control, helps you save and can help you easily see any anomalies and get them sorted quickly.
What do you think the biggest advantages of budgeting are? I’d love to know about them in the comments!
