I’ve had a budget in some form or another for as long as I can remember. It gives me peace of mind knowing that I’m in control of my finances and working towards my goals. Sure, the road to financial freedom is a long one, but my budget gives me confidence that I’m making progress.
However, a lot of people dismiss budgets as being restrictive, boring and only useful for those who are struggling financially. But the truth is that everyone needs a budget. There are huge benefits of budgeting that will change your life, making it a must-have if you’re chasing financial freedom.
- Holds you accountable for your decisions
- Forces you to consider the opportunity cost
- Shows you where to cut costs and control overspending
- Helps you save money and prepare for the future
- Enables you to create a plan to become debt-free
- Allows you the freedom to spend
- Gives you control over your journey towards financial freedom
Holds you accountable for your decisions
Your budget is a benchmark for how much you think you should be spending in each area of your life. It’s a plan for your money based on your financial goals. As a result, your budget holds you accountable for your goals whenever you spend your money.
It shows you whether you’re making financial decisions that align with your financial goals. For example, you should be budgeting for extra debt payments if you’re trying to become debt-free. However, when you use that extra money for fun spending instead, your choices are reflected very clearly in your budget.
This accountability encourages you to make better financial decisions that align with your goals and will move you closer to financial freedom. When I know I’ve spent money on things I didn’t budget for, I feel guilty. Not because I ruined my budget or overspent, but because I didn’t dedicate that money to my goals when I had the opportunity.
Forces you to consider the opportunity cost
One of the biggest benefits of budgeting is that it forces you to think about opportunity cost. It’s basically the idea of “when you say yes to something, you’re saying no to something else”.
For example, when you decide to spend $300 on eating out, you’re saying “no” to putting an additional $300 towards your emergency fund. As a result, you’re sacrificing your emergency fund for eating out.
Your budget will highlight these sacrifices because every dollar you have is accounted for in your financial plan. If you want to spend money in one area, you have to give up the opportunity to spend it somewhere else.
This is a constant thought in my head when I overspend in one of my budget categories. If I made better decisions with financial freedom in mind, I would have more money to put towards those goals. The money I ‘wasted’ on eating out and shopping could have been invested for my financially free future. Or saved towards a large purchase.
When you think about what you have to give up to spend every dollar, you also start to think about whether it’s worth it. You learn to make better decisions – ones that align with your financial goals.
Shows you where to cut costs and control overspending
When you first start budgeting, it can often be shocking to see how much you really spend in each area of your life. When I’m having a bad month, it surprises me to see how much I’ve spent on shopping or eating out. Did I really spend that much? Yes, I did.
The next month, I set a more realistic budget based on what I’m actually spending. I also plan out how I can try to do better and stick to my budget. Your budget will make you aware of your problem areas and highlight where you may be overspending. As a result, you can adjust your budget and your spending habits to help you in these areas.
Helps you save money and prepare for the future
Similarly, your budget helps you prepare for the future. Money that’s leftover in your budget can be used to save up for large upcoming expenses and other goals. The first milestone in your journey towards financial freedom will be to save up your emergency fund. Your budget will show you the money you have available to dedicate towards this goal.
Using your budget to save for things in advance will also teach you to live a debt-free life. Instead of buying something before you can afford it and dealing with the payments afterwards, you can save up for something until you can afford it.
I don’t have any debt and my emergency fund is complete. The remaining money in my budget goes towards my travel and investing funds. I also save up for large annual bills and upcoming expenses like Christmas.
Enables you to create a plan to become debt-free
Once you know where your money really goes, you can tell it where you want it to go. A benefit of budgeting is that it puts you in control of your money. That means you get to decide what to do with it.
Your budget will help you see how much money you really need to pay for all your essential living expenses and savings. After those have been taken care of, you can dedicate the rest of your money towards paying off your debt.
Becoming debt-free will be a huge milestone in your journey to achieving financial freedom. It becomes possible because your budget helps you find extra money to allocate towards extra debt payments.
Allows you the freedom to spend
Many people think budgets are too restrictive and never let you have any fun. I disagree. My budget gives me the freedom to spend my money knowing that I’ve taken care of my responsibilities and my goals.
When you create a budget, you’re spending your money on paper before you spend it in real life. Creating a budget is just deciding where you want your money to go ahead of time. If your budget is too restrictive it’s because it isn’t a realistic representation of your life. In that case, you have no freedom.
But when done correctly, your budget reflects your unique life and circumstances. It reflects the decisions you make and what’s important to you.
Gives you control over your journey towards financial freedom
When you take all of the above into account, you’re left with the ultimate benefit of budgeting. Budgeting is the key to financial freedom. Your budget gives you control over your finances as you chase financial freedom. And when you’re in control, every decision you make can be in service to your ultimate goal.
Every time I create my budget or review my expenses, I ask myself: “is this the best use of my money?”. Is there something else I can do with this money to move me closer to financial freedom? The answer is often yes.
I’m not claiming to be perfect with my budget. I overspend and forget things just like you. I don’t always make the best decisions but I do get to make the decisions. That means that I’m in control. Sure, there are many situations where I can make better decisions, but this is how we learn.
There are so many benefits of budgeting that will transform your finances and change your life as you chase financial freedom. It gives you the ability to reach financial goals like becoming debt-free. Budgets also help you cut expenses and save for the future. Most importantly, your budget gives you control over your finances so that you can chase the financial freedom you crave.