July 16, 2021

Living by a Budget is not Doom and Gloom

Living by a Budget is not Doom and Gloom

What is budgeting and what are the benefits of budgeting?

When most people think about budgeting, they usually consider it a chore… something that enslaves them and removes their freedoms to spend what they want, when they want. However, a budget is what functionally achieves that financial freedom, empowering you to take control of your finances, repay your debts, save money, anticipate your expenses and build your wealth. As Oprah once famously said: “You can have it all, just not all at once” – and it’s a budget that will allow you to achieve just that! In this article, we’ll discuss the PROS of budgeting, and how you can achieve balance.

Budgeting helps you gain financial control.

Do you control your money, or does money control you? Whichever way you answer, budgeting is the foundation of building wealth, and it’s the number one way to gain control of your finances. More than anything, the money game is a psychological one – a sound budget is the difference between worrying about money and having peace of mind about your financial future. Budgeting is about discipline, and any good budget is set with intention. A budget is a plan for spending and saving your money, and it prevents you from the stress of being unable to afford an unexpected expense or having your credit card declined due insufficient funds in your bank account (such as when it’s time to pay the balance for your coffee at the checkout). Being in control of your money does involve sacrificing short term spending habits (*AHEM, your daily morning coffee addiction*), in exchange for long-term financial goals that truly benefit your life, such as paying off credit card debt or saving up for a mortgage deposit. Being in control of your budget is the ultimate freedom, as it allows you to do things with money that you wouldn’t be able to do if you spend every dollar of your paycheck, week-to-week! 

Budgeting helps you focus on your future wealth-building goals.

Perhaps the biggest advantage of setting a budget, is the sense of financial accomplishment you will achieve with the goal of building wealth and exercising control over your money. Having a financial plan for your income and spending helps you make ends meet, avoid unexpected expenses and prepare for the future. Some common financial objectives money-savvy people often work toward include paying off your car, owning your home, taking care of your family, saving for retirement, and even investing in the stock market or purchasing real estate property investments. Having a financial goal in place makes it easier not to splurge, and you won’t worry about wasting money on expensive products that depreciate over time (i.e. cars). In the long run, wealthy investors build their net worth by investing in assets that appreciate (thus making capital gains) or generate cash flow. The best use of your resources is by making your money grow – so write down your financial goals, see a financial planner, and stick to your budget! Your future self (and bank account) will thank you! 

Budgeting helps you be more mindful and aware of your money and overall financial health.

Budgeting allows you to track how your money moves – how much money you have coming in, where and how fast you spend your cash (or credit), and how much you owe (or saved) at the end of each monthly budget period. Instead of underestimating/forgetting expenses or wondering where your money has disappeared to, budgeting helps you afford your expenses, take advantage of opportunities to save or invest, and plan how to reduce your debt. Budgeting also helps you understand what is most important to you financially based on your past spending allocation, how can adjust your spending habits to make money work better for you, and how close you are to achieving your financial goals. Reviewing your past spending reveals your true spending habits and gives you a deeper understanding of your deepest money motivations… it can be pretty shocking when you crunch the numbers, only to realise you spend more on takeaway food (*AHEM, UberEATS*) than you do on essential bills like groceries and fuel!

Budgeting helps you manage your spending.

Money can’t buy happiness, but it can make you feel more secure. Thus, without a budget, you’re one step closer to financial disaster if something unexpected happens and you can’t afford the bill. Having a budget in place stops you from having to worry, and by managing your finances properly, you have more time to spend focusing on what’s important to you. When you set a budget for the first time, it’s important to break down all of your expenses into categories, which you can do easily with a budget template via pen and paper, in excel, or with an app such as Pocketbook. Review your past spending to see how much you spend in each category per month on average and challenge yourself to reduce your expenses in each budget category.

Budgeting helps you build your savings.

Planning your budget obviously helps to control your spending, but more importantly, it’s the best way to save money, pay down debt, plan for your debt free date and future financial goals. Categorising your expenditures and re-organising your bills, receipts and financial statements helps you figure out whether you are overspending in a budget area and where you can make adjustments to save money. Reviewing your financial transactions can also help you make savings at tax time too!

Budgeting helps you pay down debt.

People can get into debt in many ways… be that losing their job, going through a relationship break up or divorce, and of course - being over-leveraged (such as being unable to pay of credit card, personal loan, car, or mortgage repayments). Budgeting helps you understand how much you are really paying off the principle if you calculate the interest rates, terms and length of your loans, and it can help you devise a plan to getting out of debt faster, because you’ll know what you can really afford to offer creditors, and which debt to start paying off first.

Budgeting helps you handle unexpected expenses.

Careful budgeting and the inclusion of an emergency fund in your expenses, means you will always have a plan for emergencies, and money set aside to cover those inevitable unexpected bills and costs, when you need it the most. When you don’t have enough money left to cover unexpected costs, the last thing you need is to fall into a debt spiral, by racking up expenses on a credit card (with a high interest rate). At the very least, if you have a $1000 safety net in your savings account to cover unexpected costs, you won’t have to worry as much about being unable to meet your most important repayments. Even better if you have 3- or 6-months’ worth of income saved up – as this will be crucial to help you overcome redundancy and long periods of unemployment or loss of income! 

Budgeting helps you communicate about your finances (with your family and spouse).

Money talk is sometimes the hardest conversation to have – but keeping it open, calm, and honest is the best way to discuss your finances with your family, spouse, parents, boyfriend or girlfriend. Of course, monetary conversations about budgeting, reducing spending and tackling debt can be challenging, but most often your loved ones will support you in improving your finances for the better. Keeping your family in the loop about household financial constraints helps everybody get on board with saving money to work together as a team and play their part in the financial solution of healthy spending. Because money trouble is one of the biggest arguments leading to divorce, drawing up a budget together also helps prevent conflict and resolve personal differences of opinion on financial responsibility, accountability, and how money should be spent. Budgeting is therefore the best way to avoid money arguments and the stress of not being on the same page financially – and you can even include some fun money or a spending limit in your budget so that you can still have the financial freedom to spend money on discretionary items as you please. 

Budgeting helps you see financial red flags.

When you look at the bigger picture of your finances, it’s possible to spot potential money troubles in advance of them becoming full-blown financial ruin. A solid budget will help you detect spending leaks prior to these becoming a big financial problem – and enables you address these financial warning signs before they get out of control – saving you from financial stress!

Budgeting helps you assess your borrowing capacity.

Did you know that consistently paying your bills counts toward building your credit score! And that’s a good thing because if you do need to borrow money, get a credit card or personal loan, or finance a vehicle or mortgage – having a good credit rating and a solid savings history will indeed improve your borrowing capacity and ability to repay the debt, and make sure you don’t borrow more than you can realistically afford.

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