Getting out of debt is much harder than it is to get into it. No one wants to be in financial trouble. Budgeting is one of the main ways to help you become debt-free and reach short term financial goals.
Why Is Budgeting Important
Many people find it challenging to start budgeting. Results aren’t going to happen overnight. So why is budgeting important? Because if we stick with it, we will progress and eventually achieve the desired results. That is why the importance of budgeting as a vehicle to help us reach our financial goals should be stressed.
Reach Short Term Financial Goals
Let’s say you want to start an emergency fund that has $1000 in three months. How would you save that amount if you don’t know whether there’s money left over after all your expenses? One of the benefits of a budget, it enables you to reach these short term financial goals by showing how much money is coming in and going out.
The Most Benefits of a Budget Life: Eliminate Debt Stress
Six out of ten Americans say that money is “a significant form of stress” in their life. Debt stress keeps people up at night, worried about the possibility of financial trouble. Paying off our debt would eliminate this type of stress from our lives. When you start budgeting, you’re able to pay off your debt and thereby reduce this stress from your life.
Achieve Financial Freedom
The importance of budgeting in helping us become free of debt is arguably the main reason to do it. Unless you win the lottery or are left a large sum of money in a will, there’s no shortcut to financial freedom. The feeling of being free from the burden of debt is even sweeter when we’ve worked hard to achieve it.
How to Start Budgeting
Now that you understand the benefits of a budget, it’s time to get started. For budgeting to work for you, follow these steps below:
Understand where your money is going by tracking expenses and income - Group them by fixed expenses (mortgage, utility, car payments, etc.), Financial goals (emergency savings, vacation fund, home down payment, etc.), and variable expenses (entertainment, personal care, and other flexible costs)
Reduce your expenses - Find ways to cut down on your expenses such as cutting your gym membership if you never go, going out to eat less, etc.
Set up your financial goals - Decide on you want to achieve where that’s saving, paying off debt, or growing your investments
Pick a budgeting style - There are many of them out there to choose from. The key is to find the one that’s right for you. Some of the ones out there include:
5. Check-in regularly - Just like in self-care, it’s important to check in regularly. See what’s working and what’s not. Then adjust accordingly.
Using Money Mindfulness to Reach Financial Goals
Achieving the benefits of budgeting can be made more accessible by having the right mindset. Money mindfulness is about training yourself to be mindful of spending and your approach to money. By removing the anxiety associated with money, our financial worries will disappear, and we can focus on achieving our financial goals.
This mindset is all about giving you control of your money, so it doesn’t control you. According to an article by Psychology Today, there are three definitions of mindfulness used by scientists:
Not taking things for granted.
Living in the present and being in the moment.
Making a conscious effort to maintain an attitude of openness, acceptance, and curiosity.
Being aware of money and your choices about money are how you build money mindfulness. A budget will allow you to know how much money you have for impulse spending. Using this mindfulness to start paying attention to your spending will allow you to become more strict on your spending.
For example, let’s say thinking about getting an espresso, taking rideshare over the bus, or grabbing snacks at the gas station. Take the time to stop and ask whether the purchase is really necessary. Impulse buys account for $5,400 on average, according to a survey by Slickdeals.net. That’s $450 a month, which would likely be put to better pay off credit cards faster or to build a six-month emergency saving.
About the Author
Anjana Paul is a banking professional who is passionate about helping others make better choices when it comes to money. In her spare time she is a freelance writer with years of expertise in the financial industry. She primarily writes about topics such as student loans, building credit, budgeting, retirement and other personal finance topics.