Written by: Sally Conway
Head of Consumer Communications
9th February 2021
Budgeting is all about balancing your expenses with your income.
Creating a spending plan for how you use your money helps you to live within your limits. If you have more money going out than coming in, you could find yourself in debt.
This guide will look at why budgeting matters and how it differs depending on personal goals or circumstances.
One of the reasons why budgeting is important is because it can help you achieve your financial goals. These goals can be anything – you may be budgeting for a special occasion or saving towards a deposit on a home.
And even if you don’t set any financial goals, budgeting is still beneficial. This is because it offers you the opportunity to build up a better understanding of your personal finances. Whatever the purpose of your budget, you’ll always understand how much money you have and how much you can afford to spend, helping you make better financial decisions.
Budgeting is the most effective way to manage your money. And although it may seem daunting initially, budgeting has lots of benefits – regardless of your financial circumstances.
There are many varied benefits of budgeting.
These are just some of them:
Few people could have predicted recent events. Many of us have been financially affected by coronavirus, and lots are struggling with a sudden change in circumstances.
64% of people who suffered a loss of income in 2020 are worried about being unable to pay a large, unexpected bill, according to our research into the impact of the pandemic.
Although a pandemic may be an extreme scenario, budgeting can help when circumstances like this do occur. Those who had already been budgeting may have had a safety net to help them during this period. But it’s not too late to start budgeting – even during hard times.
If you’re currently struggling financially, budgeting can help you cut unnecessary expenditure and get back on track.
On the other hand, if you’re able to continue earning but have fewer outgoings due to ongoing restrictions, you could use this time to save and build up an emergency fund.
The coronavirus pandemic has shown us all how unpredictable life can be and reminded us of the importance of a budget. There are many other events out of our control that we may not want to think about (such as bereavement, illness, or injury) that could impact our finances at any time. That’s why budgeting to provide security is so important.
Many of us fail to understand how much we spend on outgoings, but budgeting can put you back in control.
A budget can give you an accurate view of your bills, mortgage / rent, and other expenses such as entertainment subscriptions, fuel or public transport costs. Once you add these all up, your outgoings may be more than you expected.
Having this understanding helps you make informed decisions when contemplating purchases or new subscriptions.
To find out how to budget better and trim your bills, visit our guide on:
Ways you can tighten purse strings.
As we’ve already mentioned, setting a budget can help you achieve your goals.
Although 2021 has started in a continuous state of uncertainty, many of us are still pushing ahead with goal-setting. And whatever your financial goals are, creating a budget will be critical to their success.
If you’re looking for inspiration on the kinds of goals that you can achieve with budgeting, visit our guide on:
Financial goals and tips to achieve them.
Having a budget can help you prepare for other emergency costs, such as needing a new boiler or car tyres.
Unlike unprecedented events, you know that it’s very likely you’ll need to pay out for them at some point but you still can’t predict when.
Not having money to cover emergency costs was found to be the biggest causes of financial stress among working adults, according to a survey by Perkbox. Budgeting can give you the peace of mind that you can afford to fix something if it goes wrong.
Accounting for deposits into a savings account in your budget will help you prepare for these unexpected extras. On a more positive note, you can also put money aside for unplanned events such as celebrating an engagement, wedding or new born baby.
Budgeting also plays a crucial role in helping you avoid getting into financial difficulty or falling further into it.
Understanding what you can afford by planning your finances helps you avoid overspending on things you don’t need, so you can save more and have the funds to cover anything unexpected without borrowing.
If stuck to well, budgeting can even help you get out of existing debt.
If you’d like to know more about improving your money management, visit our guide with tips on:
How to stick to a budget when trying to save money.
Budgeting can improve more than just the health of your finances. It can improve your mental and physical health, too.
Money is the biggest cause of stress among employed adults (according to Perkbox). So we need processes in place to alleviate this stress, and budgeting is a great place to start.