10 Reasons Why You Need A Budget

11 min. read By eCompareMo on

What is budgeting and why is a budget an important feature for a healthy financial lifestyle? If you’re asking the same question, now’s the right time to keep reading as we’re going to explain to you why budgeting your money is more important than just earning it.

A lot of people are often turned off by just hearing the word budget. It often is viewed as synonymous with restrictions, hassles, and headache, and most people feel like they are too poor to budget or have many other excuses not to make and stick to one.

Just so you know, budgeting is one of the many financial lessons that cannot be preached enough. Let us walk you through the basics of budgeting and we promise that after reading this article you will be looking at budgeting with a new light.

What is a budget?

First and foremost, a budget is your spending plan. It is an estimation of your revenue and expenditure over a specific period of time, normally a month. A budget can be made specifically for yourself or for a whole family or even a business.

In a nutshell, budgeting is simply balancing your expenses with your income, making it a goal to not spend more than your means to keep yourself for falling into a debt trap that you can’t get out of.

Why is budgeting important?

Since budgeting allows you to create a spending plan for your money, it ensures that you will always have enough money for the things that you need and are important to you.

Following a budget or a spending plan will also help keep yourself out of debt, or help ensure that you manage to pay your way out of debt.

Still not convinced? Here are 10 more reasons you should create and start sticking to a budget now.

(Read: 5 Wrong Ways You’re Trying To Save Money)

1. It will guarantee you won’t spend money you don’t have

A lot of people tend to overspend up to the point that they are already using and abusing money that they still don’t have. This mindset is one common way that cardholders find themselves abusing their credit card.

According to data released by Trading Economics, consumer credit in the Philippines increased by P14.2 billion, from P359.10 billion in Q4 of 2018 to P373.30 billion in Q1 of 2019.

These days, people tend to use and abuse their credit cards to the point that they don’t realize they are already spending more than their means until they are already drowning in a huge amount of debt.

Credit cards are meant to be used by those people who know how to budget. Those people who know how to live within their means and stay on track and have enough money left to pay their bills and still have more to keep in their savings.

Create and stick to a budget. Know and master by heart just exactly how much you earn, how much you can afford to spend, and know how much you need to save. While budgeting your money isn’t as fun as going on a shopping spree, neither is finding yourself full of debt.

2. It will ensure you are ready for times of emergency

Life is full of surprises and some may be better than the others, but some are worse. When you become sick and injured, got laid off from your job, or have a death in the family, this can lead to some serious financial trouble.

When you budget, you must include an emergency fund that consists of at least three to six months’ worth of living expenses. This extra amount of money will guarantee that you will not be living day to day with debt after life crisis.

Build it into your budget, set realistic goals and start small. A P100 saved is still P100 saved and this will help you slowly build up your objective, your emergency fund.

3. It sheds light on bad spending habits

When you begin to budget, you will start noticing that you are putting your money on things that you don’t really need.

Do you honestly need more than 20 pairs of shoes and 10 high-end handbags in your closet? How about that 100-channel cable plan?

Sometimes, you tend to make your wants become your needs, but with budgeting, it will allow you to re-think your spending habits and re-focus on your financial goals.

(Read: A Credit Card First-Timer’s Guide To Basic Credit Card Management)

4. It helps you reach your goals

People who do not have a budget tend to save less money than people who do. It is because when you budget, you assign your money to do certain things.

It may be getting out of debt, saving up for a new house, or even working on starting your own business. Your budget creates a plan and lets you track it to make sure you are reaching your goals.

Start by setting aside money in your budget each month for your goals. With budgeting, it will help protect your saved money and direct it to whichever purpose it should be going to.

5. It allows you to be flexible

Budgeting can be flexible. You can move money between categories as you need to throughout the month. It lets you adjust to cover unexpected expenses as they happen.

Generally, you should restrict yourself from touching the money you have set aside for savings, but you can adjust the amount you spend on each category as you go.

It is another way that you can keep yourself from overspending. It also allows you to recognize issues and adjust so that you do not end up eating instant noodles at the end of every month.

6. It puts you in control

When you budget, it allows you to prioritize your spending, track how you are doing and realize when you need to stop. It also puts a solid idea into place that will give you the chance to plan and prepare for the future.

Making decisions at the beginning of the month or before you receive your paycheck will make it easier for you to manage your money. Checking on your budget from time to time can help you monitor it and keep you from overspending.

This is by far the biggest tool that you have in transforming your financial future, and it gives you the power to make such changes starting today.

7. It helps you differentiate your wants from your needs

Most people if not all, tend to deny separating their “needs” from their “wants.” A home internet connection, for example, is considered as a want and not a need.

Most people associate the internet as a need but unless you work from a home office, there’s a good chance that your home internet is a want. And primarily, if you use it to watch videos on YouTube, check on your Facebook accounts, it is basically just a want.

The same is true with your expensive cable plan subscriptions, Netflix plans, high-end phones, or even your overpriced hair dye.

These are all considered as your wants and not your needs and if you come to think of it, they’re not necessary for you to live. As painful as it might be for you to in the short term, sacrifice losing them to save more money in the long run.

8. It leads to a happy retirement

Let’s say you spend your money responsibly, follow your budget from A to Z, and never carry credit card debt. Good for you, but aren’t you forgetting something? As important as it is to spend your money wisely today, it’s also critical to saving for your future.

A budget can help you do just that. It’s important to build investment contributions into your budget. If you set aside a portion of your earnings each month to contribute to your retirement fund, you’ll eventually be able to build a good retirement plan.

It will only take a few sacrifices along the way but hey, you’ll be surprised that in no time, you’re already able to save for your future and it will surely be all worth it at the end of the road.

(Read: 10 Financial Mistakes Even Rich People Make)

9. It will guide you in quitting the paycheck to paycheck cycle

How many nights have you tossed and turned worrying about how you’re going to pay your bills way before you even receive your paycheck? Learn how to budget and you’ll never worry about these things again.

When you start to budget, you’ll have the ability to divide your monthly paycheck with your bills, expenses, and savings, and still end up settled with all your monthly dues.

Even though budgeting can be a little tricky at the start, you’ll surely get the hang of doing it once you recognize its purpose in your life.

10. It cultivates the right mindset

Before you can turn budgeting into a habit, you have to employ the right mindset, so you won’t end up losing momentum in the long run.

A budget helps you figure out your long-term goals and work towards them. If you just drift aimlessly through life, tossing your money at every pretty, shiny object that happens to catch your eye, how will you ever save up enough money to buy a car, be on that dream getaway with your family, or even put a down payment on a house?

Once you start budgeting, it will force you to set out your goals, save your money, keep track of your progress, and make your dreams a reality.

It may hurt to just pass by your favorite clothing store or miss the latest phone releases but sure thing is when you master the act of budgeting, it will be much easier for you to turn around, ignore, and just walk out of the stores empty-handed.

(Read: How To Trick Your Brain Into Saving Money)

Five easy steps to budgeting

So, now that your convinced that you need to start creating and keeping a budget, how do you get started?

Luckily, you can make and start keeping a budget at almost any time of the year, here are five easy steps you can take to budgeting.

1. Download a budget managing app on your phone or create your own budget spreadsheet

You can start your budgeting journey with creating your own budget worksheet or by simply downloading a budget managing application on your phones.

This is your first step in figuring out where your money goes and realize where it should really be going. By doing this, it will be easier for you to track and direct your money properly, as well as address your previously poor money behavior.

There are a lot of budgeting apps available in the Play Store and Appstore of your phones. All you have to do is discover what will best work for you and find out who your partner in budgeting will be.

2. Track your spending

After being able to lay down your budget spreadsheet, the next thing to do is for you to track where exactly is your money going.

Are you able to pay your monthly bills on time? Why did you spend P1,000 on a dinner out with your friends? Do you really need that new self-stirring mug that you just bought online?

When you start tracking your expenses, it will be easier for you to realize that you are losing your money on things you don’t really need at all.

This way, you will not anymore wonder why your bank account suddenly turns negative, or why you don’t have any money left to pay your monthly dues.

We know it will take time to do the computing but hey, aren’t you excited to see the fruit of your labor spent on something that is truly worth it?

(Read: This Step-By-Step Guide To Creating A Budget List Will Make You Smarter With Money)

3. Try different budget techniques

There are a lot of money-saving techniques available on the internet. There’s the envelope method, the 50-20-30 method, and so on and so forth.

Before you stick yourself into doing any of the available techniques, test first which method will best work for you and the situation you’re in.

You cannot just do this and do that and feel like the process is stressing you out. When you figure out what type of approach suits you, sure thing is budgeting will never be a burden to you ever again.

4. Be realistic

Budgeting is easy but if you pressure yourself into doing something big for the first time, it will be a hard nut for you to crack.

What we’re saying here is, when you budget, don’t set out goals that are impossible to achieve. Try starting with small objectives and climb your way up little by little.

What’s important is you are achieving something no matter how small or big it is. It will only give you the anxiety if you won’t be able to achieve your goals and it will sure impede your drive to save the next time.

(Read: Here’s How Much And How Long You Should Save Up For Anything)

5. Don’t deprive yourself

Budgeting is not synonymous with spending as little money as possible or making yourself feel guilty about every purchase.

The aim of budgeting is to make sure you’re able to save a little each month, ideally at least 10% of your income, or at the very least, to make sure that you aren’t spending more than what you’re earning.

Unless you’re on a very tight budget, you should be able to buy cinema tickets and go out to eat.

Tracking your expenses do not change the amount of money you have available to spend every month it just tells you where that money should be going.

To end all this, as the saying goes, “If you fail to plan, you plan to fail.” It is never too late to start budgeting. What you have is now and if you fail to learn from your past mistakes, you’ll be doomed to repeat it all over again.

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eCompareMo

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