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Why you should make a budget

Updated on July 14, 2011
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Budgeting is a tool; its effect is based on how it is used and who uses it. It’s an activity that is a crucial aspect of financial planning. Using a budget is not merely about allocating finances, it improves your life by facilitating better management of your personal finances.

Attainment of financial goals

A budget should be made with financial goals and priorities in mind. It is a roadmap to those goals as it stipulates how you will go about achieving them. Without adhering to the plan, financial goals would be mere dreams. A budget helps you to translate dreams into reality in the long run.

Reduction or elimination of debt

Before you can go up, you need to ensure that you’re out of the hole that debt creates. If debt reduction is a priority, budgeting allows you to think about this goal in a robust way. In addition, following a budget helps you to avoid bad habits like impulse buying, which can increase your “bad” debt.

Financial acuity

Budgeting encourages thinking – thinking about your financial situation, goals and lifestyle. This activity provides a unique opportunity to assess what money means to you and what lifestyle you want for yourself and your family. It is not just a plan for the future; it’s a plan that assesses your past as well. You would develop better financial awareness through budgeting.

Prioritization

When we have limited resources, choice becomes even more important. Everyone’s resources are limited to a greater or lesser extent. Budgeting is merely a tool that allows you to align your choices to your dreams. You need to prioritize your options, especially as it is easy to put the “now” over the future. Prioritization motivates persons to make sacrifices that redound to their benefit later. Budgeting helps to provide the balance between today’s expenses and tomorrow’s needs.

Asset management

Budgeting is all about your assets when it comes down to it, with the main asset being cash. A good budget can reinforce capital growth and prudent management of your financial resources. For those who do not realize the power of budgeting, it’d just be an exercise in listing expenses. Such persons may spend anything left over any way they please. The financially savvy individual would use a budget as a way to grow and manage assets.

Conclusion

Budgeting is not merely a tool to map your income against your expenses. You can evaluate your life and your lifestyle and work to change things through a good budget. It allows you to monitor and periodically evaluate your situation against your stated goals. However, a budget is not effective without financial discipline. While there are benefits in merely creating a budget and thinking about these things, it may amount to nothing if you do not adhere to the plan.

Comments

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  • Deborah-Diane profile image

    Deborah-Diane 

    7 years ago from Orange County, California

    My husband and I have followed a monthly budget for 40 years. It does make a real difference!

  • texasgirlfw profile image

    texasgirlfw 

    7 years ago

    Thanks for this advice. I have struggled all my life to make ends meet. Now that I have a budget I have put some money away and feel much better.

  • rachelsholiday profile image

    rachelsholiday 

    7 years ago

    Thank you for writing this! After battling for almost a year I have finally convinced my husband that following a budget is a good idea and I'm really excited about it.

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