Why is Budgeting Important? 7 Reasons you Need a Budget

Why is budgeting important? Look no further! My friend, along with 7 reasons why you need a budget, and ways to start, we’ve got you covered!

Why is Budgeting Important (Effective Methods to try!)

I see budgeting a the foundation of any successful financial plan: managing money well is the platform from which we build a bright financial future. A budget comes in many shapes and sizes and learning how to start budgeting can be a challenge for first-timers.

Budgeting allows you to monitor financial health, promote and cultivate good financial habits, attack credit card debt, build a brighter financial future, empower you to spend money where it matters, provide a personal finance education, and demonstrate good habits for your children.

As we explore this topic together, I encourage you to take heart and know that your time invested in learning how to manage your finances, control your spending habits, and monitor your financial health are absolutely worth it. I’m excited about your financial future, my friend!

Why is having a budget important?

A theme in our blog is to cultivate Mêtis in our Money Matters, and budgeting is right at the top of that list of ways we can all gain advantage in life.

Think of budgeting as managing your own company. With a budget, we gain valuable insight as to where our dollars are being spent, prioritize what we want to accomplish now and in the future, and take ownership of our situation. My friend, this is where you start to take your financial life back!

With a budget, we put all dollars “to work” so that we are always moving in the direction we established from our budget plan. However, that doesn’t necessarily mean bean-counting and hours of misery each day.

I find that a weekly check-in of the budget provides adequate monitoring and structure to the process of managing my finances. In addition, I also check-in more frequently at the month-end and the first couple of days of the month to ensure transactions process smoothly and are allocated to the proper month.

Why is it important to create a budget?

Done well, a budget provides greater flexibility, financial resilience against difficult times, and enhances the financial quality of life for you and your family.

7 Reasons you need a Budget

Budgets are important, yes. However, it helps to quantify those benefits so you can stay motivated, disciplined, and engaged. Here are some of my favorites:

1. Monitor Financial Health

When my wife and I first got married we had plenty to figure out with life in general. Finances were a stressor, and we learned the hard way what can happen without a good budget and budget process – it was painful!

Budgets tell you where the dollars are going, keeps you on track each month (don’t spend more than you make), helps prepare for the unexpected (direct money to sinking funds and emergency funds, etc.), and otherwise, give you a financial temperature.

Running the budget too hot? A budget will help you make cuts where they need so you can get back to a healthy financial place. Already good at budgeting? This same process can help you identify more opportunities for the future! There is something for all of us.

2. Cultivate good Financial Habits

Because we couldn’t budget money properly at first we knew we had to change. We tried to keep a budget and failed several times before we finally figured out what worked for us.

We quickly realized we needed to make positive changes and incorporate dramatically better financial habits. Being honest with ourselves, we knew where we needed to cut back, save more, create, and pursue. Quickly, we realized the solution was creating better habits in other areas of our lives. This is something where all of us can keep working – there’s always an opportunity to sharpen, polish, and improve! Keep up the hard work. Get motivated, build discipline, and change your financial profile.

3. Attack Credit Card Debt

Fortunately, this wasn’t a huge pothole for us, but credit card debt did contribute to extra stress in our life. As soon as we got serious about improving our financial situation, we went after credit card debt first. With our budget, we put any extra money we had straight into paying these balances down.

After we took care of the credit cards we had a morale boost, too! Depending on your position, I’d encourage everyone the same way: get rid of credit card debt and never go back. I’m not saying credit cards are evil, but they should be handled carefully and only if you are able to manage them. With that said, sometimes it means “saying no” until you can get yourself back on track. If needed, don’t be afraid to cut them off for a time!

4. Brighter Financial Future

With the encouragement from our recent win still fresh, we found it was easier to get more serious with the budget. Almost right away, we made more time to meet as a couple and review our budget, make changes and agree on what we wanted to do in the future.

By setting goals, and focusing on the long term we also noticed it makes the short-term challenges seem smaller and more manageable as well. Just like that, the budget was helping us accomplish what we wanted to do and our future was brighter every day. Working together, being honest, and following the budget helped us keep moving forward.

5. Spend your Money where it Matters

We had (and have) goals, dreams, and things we want to spend our money on. The budget helps keep us focused on paying current obligations, staying out of debt, doing what we can to prepare for the “unknown.” My friend, it doesn’t stop there! A well-oiled budget liberates you as well.

Without a budget, we felt overwhelmed and ill-prepared for what life was dishing out. With a budget, we knew what we had to plan for. Beyond that, our extra money was now going to what we wanted to do. Saving for a vacation, enjoying some nicer dinner dates, buying some camping gear – it was all now in our reach and a matter to be solved with our budget.

6. Personal Finance Education

After celebrating financial wins, I find that I rather enjoy the budgeting process. Instead of “bean counting” and pinching pennies, I see it as a game of chess. It fosters growth, challenges the status quo, and promotes learning in all areas of personal finance.

By using the budget as a tool to shorten the timelines to our goals we are also learning more about the rest of our finances. Saving for Retirement was something we didn’t really talk about after we first got married. Now, without budget giving us transparency into our finances and no longer a huge “stressor” we can broaden our horizon into Roth IRAs, Life Insurance, side-gigs, saving for college, and getting more involved with charitable giving.

7. Providing a Good Example

Like all parents, we want to set up our kids for success. One way to do that is leading by example, and showing them what it looks like to practice good financial habits. My wife and I take time to show our kiddos the budget process and help them replicate the efforts for their finances. Our goal is to instruct and empower them to start dreaming big and use a budget to keep themselves on track in the future and out of crippling debt.

A little lesson here and there, and the reinforcement of the budgeting concepts in our lives and we are excited to see them decide to save on their own or forgo a flashy toy when they realize how it will set them back. Still works in progress, but I’m glad they are at least thinking about their own budgets.

What Methods of Budgeting Work? Give these a try!

There are several ways to go about budgeting, and I’ve tried all these methods myself. I will say that our budgeting process and planning have changed over the years, and is more time-efficient now than originally. Part of this is allowing yourself time to dive in early on, figure it all out, automate what you can, and keep after it.

Miss a few weeks? Make a mistake? Don’t give up. Try again, and remember this is something you can do!

Budgeting in Excel

We first started with the good ol’ budget in excel and built it by hand. Then, we tracked our expenses and income by hand, accounting for every dollar and transaction. Looking back, I like that we took the time to learn by hand. This is granular, and it can be very labor-intensive. If you try this method, make sure and save your work to a secure location.

Cash Envelope Budgeting

After Excel, we tried the Cash Envelope system and enjoyed that as well. Right away, it puts “eyes on” the money, and you “feel” the expense much more than if you swipe a card, or pay over your phone, etc. This is also a great way to better learn financial discipline and help cut back on spending in certain areas. To this day, if we have a challenge in an area of the budget, we often revert to a “cash only” method to get it back under control. After all, when the money is gone, it is simply time to stop spending in that area.

Electronic Budgeting

After these first two, we moved fairly quickly into electronic budgeting. Mint worked well for us! The first two methods instructed, encouraged, and motivated us. However, we found the time savings and transaction management provided a better fit for us. Electronically, the transactions and categories were quickly summarized and refreshed for when we logged in. However, we also noticed it was easier to “disconnect” from the transactions and spending in some areas quickly rose.

Hybrid Approach to Budgeting

Currently, we use a hybrid approach and plan on maintaining this for the foreseeable future. We primarily use electronic budgeting, augmented with cash envelope budgeting for trouble spots. Additionally, we use the Excel method to project and prepare the Pro-forma statements. At a higher grain, we also use Excel to “try on” business and budget ideas. This method allows us to use the strengths of each and best supports our needs.

My friend, I hope you found this helpful and can use it to support your vision for the future. I’d like to encourage you to simply get started; don’t worry about “getting it right” the first time. We all need a budget! I wish you and your family the best on your financial journey!