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The Advantages of Managing Your Budget Effectively Far Outweigh the Little Bit of Work Each Month.

Most people know what a budget is and have some idea of why it’s important, but are reluctant to start one because it requires a little extra work.

The benefits of managing your budget effectively far outweigh the little work required to keep one. If you’re serious about improving your finances and achieving your financial goals, you absolutely need to start a budget and start being intentional with your spending.

What is a Budget?

A budget is a tool for managing your money. Essentially, it’s just a written plan that includes where you intend to spend your money and tracks how well you’re performing.

A budget is a proven, effective way to improve your finances and ultimately achieve your financial goals. Read how to create a simple monthly household budget and start a budget today.

Benefits of Managing Your Budget Effectively

Provides you Total Control Over Your Money

When you create a monthly budget, you see exactly how much income you receive, how much is spent each month, and what it is spent on.

This gives you a clear picture of how much you have to spend each month and you decide how every dollar gets spent.

Allows you to Track Your Financial Goals and Reach Them Faster

This goes without saying, but you need to be mindful with your money and use it wisely to reach your financial goals. Once you’ve identified your goals, you should think about them when you’re setting your budget.

Do you have extra income you can budget or an expense you can cut to get closer to your goals?

If you think about your financial goals each month, it’s much more likely that you’ll meet them (and probably sooner than you anticipated).

See the Complete Financial Picture

In addition to giving you complete control over your money, budgeting allows you to make informed decisions with your money.

As an example, let’s say you budgeted $50 for recreation this month and a friend just told you about a once in a lifetime concert that costs $55 per ticket. Because you updated the budget, you’ll know exactly how much you have to spend for recreation ($50) and, if the ticket is really important to you, you’ll know where you can make up the $5 in your budget (maybe you take it out of your food or clothing budget).

Allows you to Set Your Financial Priorities and Avoid Frivolous Spending

Starting and maintaining an effective budget allows you to practice mindful spending and set your financial priorities based off of what’s most important to you.

Are you a health nut that needs to eat organic, grass fed meat, but could care less about television? Ditch your television entertainment packages, and move that budgeted money towards food.

Are you in need of a new car, but could care less about new clothes? Lower your clothing budget and add it to your savings for the new car.

Identify any Changes or Mistakes in Your Finances Early

Effective budgeting allows you to identify any changes to expenses (i.e. raises in utilities, cable, gas, etc.) or mistakes (i.e. store charged you twice for an item you purchased once, work accidentally short-changed you this week, etc.) early before it becomes a major problem.

A good example would be if the water bill doubled or tripled from one month to the next. This could mean that you have a water leak somewhere or it could simply be a mistake made by the water company. If you didn’t have a budget and your payments were automated, you may not notice the problem until months down the road.

Identify Room for Improvement

Budgeting allows you to identify room for improvement in both your income (maybe you need a raise or higher paying job) and expenses (did you spend too much on gas this month? Next month, don’t travel as much.).

Small changes month to month add up when compounded over time.

For example, let’s say you notice that you spend $150/month on your high-speed internet. You’re looking for ways to save money, so you do a little research and find that a local competitor can match the internet speeds for $100/month. While $50/month doesn’t sound like much, month to month, over the course of a year, you will have saved $600 that could be used towards reaching your financial goals.

Makes it Easier to Talk Finances

Talking finances is never easy and some even consider it taboo, but the more you understand about your own finances, the easier it is to discuss.

The most common argument between married couples is about finances. Having a budget that your spouse is involved in and contributes to makes it easier to be on the same page financially.

Also, managing your budget effectively gives you confidence and makes it more likely that you will discuss financial topics around loved ones or friends which may also help them get their finances in order.

Makes it Easier to Save Money, Create an Emergency Fund, and Invest

When you control where your money is going, it makes it much easier for you to start saving for the future, create an emergency fund, and invest.

As an added bonus, as you start investing, your dollars will start generating revenue themselves. Before long, your investments will contribute a substantial amount towards your income each month.

Allows you to Pay Down Debt Quicker

Again, when you control where every dollar goes, you can be intentional in your financial priorities. If you have debt, you can increase your income or decrease expenses in your budget to contribute more towards paying off debt.

Allows you to Have Fun Without Guilt

When you budget effectively, you know that as long as you stick to your budget, there won’t be any financial surprises. You aren’t forgetting about something or spending money when it should be going towards something else.

An example might be a vacation. Let’s say a vacation was important to you and your family, so you’ve been budgeting $300/month for the last year and it is finally time to spend that money on the vacation. You can spend that money guilt-free knowing that you worked hard and saved for a year to be able to enjoy your vacation.

Peace of Mind

Having an effective budget gives you peace of mind because you know exactly where each dollar you’re spending is going. There’s no worrying about overdrafts, penalties, etc. because you know as long as you stay on budget, you have enough money to cover your expenses that month.

Also, knowing how you are tracking towards your financial goals gives you peace of mind because you know how much is being contributed and roughly how long it will take to get there. You have a plan and know that each extra dollar can contribute towards reaching your goals that much faster.

Conclusion

Speaking from personal experience, the benefits far outweigh the work you put into creating and managing a budget. Once you’ve created your budget, managing it can take very little time each month (it takes us about 30 minutes a month).

Do you dream of being “debt-free”? Do you dream of financial independence, so that you’re free to pursue whatever job or career makes you happiest? Do you dream of staying at home with your children?

If so, make your dreams a financial priority. Start a budget, manage it effectively, and each month your dreams will come more and more into focus. You’ll start seeing that those dreams are possible and not nearly as difficult to achieve as you once thought. Start you budget today and you’ll be amazed how quickly you reach your goals.

What benefits have you received from budgeting? How do you budget?

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