Whilst budgeting might seem boring and mundane, it’s really important because it helps to keep your finances healthy and on track. Budgeting helps you to forge good financial habits, avoiding debt and preventing overspending. Keep reading to learn more about why budgeting is important.
Having all of your bills included in a budget helps to ensure that you’ll pay them on time. Life can be busy but incurring late fees can be expensive! A budget shows you an overview of everything which needs to be paid and when so you shouldn’t fall behind with the bills.
According to Moneyzine, the average personal debt of British adults is well over £35,000 and over 10% of British consumers have admitted to using credit cards, loans and overdrafts more than they have in the past.
If you’re already in debt, having a budget is a really important tool for managing it. Your budget can help you to identify income that can go towards paying off debt, once all your bills have been paid. If you stick to your budget, it’s unlikely that you’ll accumulate any further debt.
If you don’t have an emergency fund already, having a budget can help you to establish one. The whole point of having an emergency fund is that you don’t know what the future holds and should be prepared for anything which may halt your income such as sickness or redundancy.
In order to start building an emergency fund, you’ll need to sit down and analyse your current spending. You may decide to cut down on your flexible spending such as takeaways and holidays, with the money you save then put aside into a high interest, easy access account.
It’s recommended that your emergency fund should have enough money to cover three to six months of essential spending should you unexpectedly lose your income. This gives you a bit of breathing space should the worse happen and takes the pressure off at lease in the short term.
Remember, when you take money out of your emergency fund, you will need to replenish it so don’t touch it unless you have a genuine emergency.
You might think we’re repeating ourselves but savings is not the same as an emergency fund! The two should be kept very separately. You might decide to save for something specific or simply save for a rainy day. Whatever the reason for saving, budgeting makes you more accountable for your spending, hence making it more likely that you’ll save money.
If you struggle with impulse buying and keeping your spending under control, having a budget can help you prevent overspending. A budget is just a plan for what you’ll do with your money so it doesn’t restrict you from buying what you want. Using a budget just helps you to plan your spending so that you don’t spend more than you have!
Having a plan for your money is important if you have long-term financial goals. If you’ve got plans such as buying a house or perhaps you want to start budgeting for a wedding, having an overall budget will help to keep your finances on track and reach your goals quickly.
If you’re in a relationship and have different approaches to managing money, it can cause tension and arguments. By agreeing upon a shared budget, it puts you on the same page financially and reduces disagreements on what to spend your money on.
If you have children and have a budget in place for your family, this sets a positive example and introduces the concepts of budgeting at a young age. It’s important for them to learn financial boundaries and that they can’t have everything they ask for. If it isn’t included in the family budget, they need to be able to accept “no” for an answer.
Remember what we said about accountability?! If you have an effective budget that includes all of your spending, it can help you to identify bad spending habits which may be holding you back. Perhaps you’re spending money on things you really don’t need such as unused subscriptions. Your budget can help you shine a light on unnecessary spending and redirect that money towards your financial goals.
Research by the Money and Mental Health Policy Institute shows that there is often a strong link between money worries and mental health problems. Their research has found that almost half of people who find themselves in debt, also have a mental health problem. Living pay day to pay day and/or wondering how you’re going to pay the bills can be really stressful and damaging to your mental health. Budgeting will give you and your finances structure so that you know what to expect and when. If you can eliminate nasty financial surprises, this will help to reduce stress.
If we’ve now convinced you as to why budgeting is so important, we can now help you build your budget with Budget Pro.
If you’re approaching your retirement, having a budget now will help you to plan for a reduced income when the time comes. You’ll be able to identify your income streams and a budget will also help you to spot where you might be able to save money. We hope you’re putting money aside for your retirement already but just in case that’s not the case, we would encourage you to add this to your budget now. Even putting aside a little every month could make a big difference later on when your income is reduced.