Picture this. You planned that long-awaited holiday to a foreign land with your family but forgot to have an itinerary in place. While you will still go about your vacation by visiting random spots or finding different activities to do, you will do all of that at the cost of wasting your time and money. A well-planned itinerary on the other hand would have saved you a lot of useful time and also financial resources (by warding off unexpected expenses).
Likewise, when it comes to money management, it is imperative to have a plan in place which will help you take stock of your income and expenses. And this is what we all know as ‘budget’ in the financial dictionary.
Today, we will have a look at reasons why budgeting is important to have a sound financial health. As you will observe, it is an easy task to accomplish, and highly effective too. Here we go!
Saving towards financial freedom
First and foremost, a budget helps you to save money which in turn is a way of building your wealth and guaranteeing financial freedom in the coming times. A budget gives a clear idea of the monthly expenses, thereby letting you know how much you can consistently save month on month. As you go on doing this, you build up a pool of funds which can always help you on a rainy day- saves a lot of mental stress!
Prevents going overboard
Another significant benefit of budgeting is that it helps you keep a tab on overspending. People who go about spending their money sans a budget every month, end up going overboard. This eventually turns to a point where debts start accruing because of spending over and above your financial resources. Through a budget, you can clearly identify areas where you are spending more than is required and thus curb the habit of going overboard.
Set and prioritize goals
An often overlooked but key advantage of budgeting is that it helps families set and prioritize goals. It could be buying a house or a car, taking an exotic holiday, or maybe even setting up an entrepreneurial venture. Once you have a budget in place, you will- know what is important; how much you need to save to achieve the set goals; and the timeline you need to get there. Setting and prioritizing goals is the hallmark of a good financial planner, and budgeting helps you do that precisely.
Flexibility to cover unexpected expenses
Life is unpredictable. You might be sitting comfortably on your sofa lazing around on a Sunday afternoon when suddenly your kid who was playing outside with friends comes back with a fractured hand. This calls for immediate medical attention, and of course hospital expenses. This is a one-off example. Day-to-day life can throw many unexpected expenses and your budget will help you to cover those effectively without any hassle or stress. So in this instance, you decide to allocate the money dedicated towards entertainment for the ongoing month to your child’s medical expenses. Because you had a budget in place, you had the flexibility to move funds from one category to the other, whilst sticking to the total monthly expenses.
So we see that budgeting makes you financially wise by saving more, keeping debts at bay, curbing overspending, and doing away with mental stress of how to pay those ‘monthly’ bills. So get your numbers in place today, do the math, make a creative budget for yourself, and see your financial health transforming for the good.