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Budgeting 101: Why is a Budget Important?

why is a budget important

Have you been told that a budget is essential but don’t know where to start? Wondering why is a budget important? Filled with dread about the process of starting a budget? We’re here to tackle some of the misinformation about budgeting and help simplify the process.

Why is a budget important?

Learning how to make a budget can feel like a chore, but it’s essential to eliminating debt, saving for the future and learning to better manage money. Why do you need a budget? Because with a solid budget, you can not only get on top of your spending and income, but you can also make a map for your financial future. Instead of thinking of a budget as a strict set of rules and regulations (or a financial time-out), we encourage you to think of it as a set of blueprints that can help you build a better financial future.

Getting Started -- Budget Basics

Learning how to build a budget means learning to take a close look at two important areas in your financial life: income and expenses. This is the foundation of your budget and it can’t be skipped. Once you understand what’s coming in and what’s going out, you can make better financial decisions.

When you’re getting started, it’s a good idea to keep track of your expenses and income for a few weeks or months before you sit down and put together your budget. Collect your receipts and review your bank and credit card statements to get an accurate picture of where your money is going, and don’t forget about cash spending! Create categories for your expenses, such as housing, car payments, entertainment, and groceries so you know where to put the expenses as you track them.

When evaluating your income, look at the amount you bring home after taxes each week or month. Make sure to include any child support, rental income, investment income or any other type of income that doesn’t come from a paycheck. The total amount is what you have to spend each week, month, or year. If your income isn’t consistent, you can take the average over a quarter, 6 months or a year to get a fuller picture.

Once you’ve tracked your expense and established your total income, it’s time to compare the two. If your monthly take-home pay is $3,500 and your monthly expenses are $3,700, it will be neccesary to make some adjustments to your spending or earning to ensure that you aren’t accumulating debt each month.

Making Budget Adjustments

Why is a budget important? It provides the benefit of letting you clearly see where you’re overspending or working against your financial success. Your fixed expenses such as housing and car payments can’t be easily changed, but other expenses often have more room for adjustment.

For example, you might create a category for clothing expenses on your new budget and see that you’re spending 5% of your income in that category. If you have room in your budget to spend this much, it’s not a problem, but if it means you can’t allocate that money towards more pressing expenses, this is an area you can cut back in.

When you understand the whole picture of your spending patterns, you’re able to see whether you’re making progress toward your financial goals and where you can improve to ensure financial success.

Financial Goals

Another aspect of answering the question “why is a budget important” is understanding how a budget impacts your financial goals. Have you ever heard it said “a goal without a plan is just a wish?” Think of your budget as the plan that helps you meet those financial goals.

When thinking about financial goal setting, ask yourself what you want your money to do. Do you want to save for retirement, a down payment on a house, or for a vacation? Do you need to replace the tires on your car or buy a new appliance? Your budget should reflect your goals and priorities. Consider having a short term goal, a mid-term goal and a long term financial goal to work towards in your budget, and as you meet those goals, replace them with new ones!

There’s nothing that will motivate you to keep going more than meeting a financial goal that you’ve been dreaming about!

Don’t be afraid to ask for help

Putting together a budget, may not be the easiest or most enjoyable task, but it’s important. If you’re wondering why is a budget important and don’t know how to make sense of your financial situation, a financial professional can help you evaluate your spending and debt to come up with a plan that works for you and your family.

If you are experiencing financial difficulty and are looking for a solution, non-profit credit counseling can help you make sense of all your options. ​Contact us today for a free financial assessment with one of our certified credit counselors.

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