It is often asked why you should budget. It is so boring. I don’t have time to budget. Lots of excuses. But the truth is budgeting is very helpful and beneficial to you and your family. Here are 5 Reasons Budgeting Can Improve Your Life.
1. Reduce / Eliminate Debt
The number one reason given for making a budget is to reduce your overall debt and to eventually eliminate debt from your financial life totally. Budgeting is a tool by which you take back control of your cash flow. You remove the majority of the spontaneous spending and you plan ahead of time on how your money will be spent. It eliminates the feeling of no control and returns those controls back to you.
2. Build Savings
Budgeting is not just for being rid of debt. Once you have paid off all of your debt you should continue to budget. Where before you were directing your money were to go to get out from under that debt burden, now you can direct your money where to go for savings and investment purposes.
Once you get to this stage of budgeting, budgeting actually becomes fun. Because now instead of watching your money being used up on paying off things you purchased in the past, you can now watch your money grow and build up for purchases that you will need to make in the future. Budget 10 to 20 percent of your take-home pay to go to savings. It could be an IRA (Individual Retirement Account), it could be a Certificate of Deposit (CD), or a Money Market Account (MMA).
Or just save it in the bank and watch it pile up there. All the “savvy” people out there are now yelling, “but you get terrible interest rates with a savings account.” And that is true, the amount of interest you can earn on a savings account is significantly less than other money vehicles. But, how many people can actually say they have $5000, $10,000, or more sitting in a bank doing nothing? Not many. And it would be a good bet that those same people yelling about lousy interest rates in bank accounts don’t have $5000 or more in any other high-yield account either. Except for a company 401k plan if they are participating. $5000 in a savings account is worth more than $5000 on a credit card bill.
3. Reduce Stress
This leads to the ultimate reason to budget which is to reduce stress. Hopefully the example of the savings account above demonstrates that. Your level of stress over finances would be greatly reduced if you had $5000 in the bank. Or $10,000 or more. Admit it, when you read $10,000 in a savings account above, you were thinking you wished you had even a tenth of that saved. Surely you can picture, even feel, what sense of power and relief it would be to have that money just sitting in a bank account somewhere, on the off-chance you needed it.
4. Retirement
Budgeting allows you to direct where your money goes. The ultimate goal is to get to a point where your money is working for you so that you can work less for money. This is called retirement. Budgeting can get you to the point where you have saved enough money to not have to worry about money. Then you can retire, if you want. Or you can continue to work if you choose. Part-time even. But if you never budget you are leaving your money to be directed and grabbed up by others. And when it comes time that you want to retire, you may find you don’t have the option to quit.
Which would you prefer to be:
a) a 65-year old person who continues to work because you choose to? You have the option to say no more.
b) or a 65-year old who has saved nothing and has loads of debt and HAS TO continue to work.
5. Generational Impact
One last benefit of budgeting that many don’t realize is that by budgeting and being good stewards of your money, you teach your children by example how to handle money. And in turn they will teach their kids. You can actually make an impact on multiple generations just by budgeting and handling your money properly. It won’t require you to buy a huge estate, farm, or company to do so. Your impact will be felt by how you behaved and not by what you bought. That is a true legacy.
So get going budgeting, erase debt, and build wealth!