Having a budget is the best way to keep an eye on your spending. Without budgeting, you might accidentally spend the money you need to pay a bill. You can also use budgeting to help you invest extra money, so you can get a good rate of return. Here are 5 reasons you need to have a budget to manage your money properly.
1. You Won’t Spend Money You Don’t Have
This is generally the most important reason for having a budget, at least at the beginning. If you’re not sure how much is coming in, and you don’t plan for how much is going out, you could end up with serious financial problems. You don’t want to overdraw your account or be unable to pay a bill, and a good budget can make those problems far less likely.
While you still need to make enough money to cover your expenses, you need to be clear on what those expenses are. If you don’t have enough coming in, you may have to cut down on spending where you can. A budget makes everything clear and can help ensure that you’re leaving enough money in your account to pay your bills.
2. You Can Get Prepared for an Emergency
Some of the best budgeting apps offer help to start up an emergency fund. For example, you may be prompted to “round up” any spending you do and have the difference between the actual cost and the next dollar amount go right into a savings account. You can also set up automatic transfers and take other steps to build up an emergency fund, but you need to learn about the options you have and find what works for your needs.
Getting prepared for an emergency doesn’t mean you have to have a lot of savings, although more is better. Ideally, you want to end up with the money for several months of expenses saved up, but starting with a small goal like $500 or $1,000 in an emergency fund is still much better than not having anything at all.
3. You’ll Quickly Spot Poor Spending Habits
If you’re making some poor money choices, like spending too much for takeout food each week or going to the casino too often, you need to catch that quickly. Spotting these habits is one of the biggest of the 5 reasons you need to have a budget. You can’t correct spending problems if you don’t know they’re there, and a budget helps you see them faster and more easily.
Making changes to your spending habits isn’t always easy, but it’s an important way to ensure your bills get paid. You can also build up your savings faster, so you can protect yourself if you have a financial emergency in the future. Having more money in the bank means better peace of mind.
4. You’ll Have Your Eye On the Things That Matter
Having a budget also helps you look to the future. That’s especially true if you’re trying to start up a business, a side hustle, or another type of investment you believe in. What if you want to increase your marketing options and buy a YouTube channel? If you aren’t budgeting for those kinds of purchases you can end up feeling pretty stuck.
You might miss out on a great opportunity if you don’t have any money put back when that opportunity comes along. No matter what you’re focused on for the future, saving money and having a budget can be extremely important. Sure, it’s more fun to spend money instead of saving it, but that fun is fleeting, and saving will help you get toward bigger goals in the future.
5. You Can Plan for Security in Retirement
Whether you want to retire early or you plan to work as long as you can, you still want to have retirement security. One of the 5 reasons you need to have a budget is that a budget can help you build a strong retirement. When you set aside money in an IRA, 401(k), or another type of account, that money can grow and give you the option to retire on your terms when you choose to. Working into your later years is fine if you want to do it, but being forced to is different.
A secure retirement isn’t just about the age at which you can retire, either. It’s also about the things you want to do in retirement. Some people are happy to stay at home and have small adventures nearby. Others want to travel the world or make big changes in their life. No matter what your post-retirement days look like, though, making sure you have the money you need to experience those days the way you want to can make your quality of life much better.
AUTHOR BIO:
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author.
He’s been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What’s Your Story, and more.
He loves to share his personal finance tips and money management wisdom with others on his website, ShawnManaher.com, to help them find financial freedom.
