Benefits of Budgeting
When budgeting is mentioned, some of you may think of restrictions and austerity, and for some, that's the end of it. But budgeting can also be seen as a financial roadmap that will help you to make the best use of the resources available to you in order to get closer to your goals (e.g. well-being, financial health, independence, more time for the things you like).
1. Why should I care about budgeting?
The modern economy increasingly requires consumers to make complex and sometimes difficult financial choices: You might ask yourself, "How much should I save each month, and where do I invest? Should I rent or buy a place; how much do I have to deposit, and what can I afford? Should I buy or lease a car and how much will it cost per month?"Certainly, you don't need an economics degree to answer questions like this. But, as a basis of decisionmaking, it pays off to at least know how much money you have and how much you can spend.
Speaking for myself, keeping track of my expenses and earnings according to my own schedule provides me a reasonable level of financial assurance in terms of my current financial situation. I soon realized that budgeting (managing one's finances according to some sort of plan or system) has much more benefits than I initially thought. Some of those benefits become apparent shortly after you start with budgeting, while others become clear over time.1.1. Budgeting can help to avoid unnecessary and unpleasant costly surprises.
Budgeting can not predict everyday's uncertainties, but it can help you to get an overview of your earnings and your expenses. A detailed monthly spending plan enables you to discover financially relevant trends sooner while minimizing the risk of costly, unpleasant surprises:- Red flags will show up before it's too late to do anything about it; you could fall behind in your finances, which makes it way harder to catch up. Besides, you can more easily detect if you are charged for things that you would not know about otherwise, such as hidden fees in a legitimate charge, or hidden deductions you never noticed before, or bogus credit card charges.
- You will be able to better avoid credit card debt.
- Knowing exactly how much money you need to survive enables you to set aside that emergency money for a rainy day.
1.2. Budgeting can reduce financial stress and improve overall well-being.
When it comes to budgeting, it is not so much a matter of how much money you actually have than of being in control of your own financial goals and liabilities. This can help you to reduce your financial stress and contribute to your well-being for these reasons:- You will find ways to save on your purchases.
- Your credit score and financial history will work in your favor.
- You could pay off debts, such as a student loan or mortgage, faster.
- You might be able to work less hours while still saving money.
- Better financial planning and establishing a credit history could ease the task of getting a mortgage.
- If you plan accordingly and save for the years to come, you might be able to retire on your terms.
- You'll see the bigger picture. You consciously perceive and reflect your own consumer behavior and learn to distinguish what is a necessity from what is merely a luxury.
- You may be able to get by with only a part-time-salary, giving you more time for the things you like.
- You could be more independent, even in financially tense times.
- You break the cycle of living from paycheck to paycheck, so you can live free and do more of what you love.
