budget planning

Budget Planning Basics: 7 Reasons Why Budgeting Is a Must

  • By Leigh C. Taylor, LIT

According to a worldwide survey conducted by VISA, only 49% of Canadians keep and follow a household budget. If you fall into the other 51%, you probably have your own reasons why you don’t budget. Maybe you’ve never really thought about budgeting, or maybe you think it’s unnecessary. Or perhaps you think you’re getting along fine without one.

Regardless of your reasons, budgeting your money is a critical part of successful financial management. Here are 7 reasons why budgeting your money is a must:

1. It shows you where your money is going.

Have you ever gotten to the end of a pay period, checked your bank account, and asked yourself, “Where did all my money go?!” A budget can answer this question. The first step to creating a budget is to track your expenses. This is often a wake-up call for many people. Following a budget also encourages you to track your spending carefully, so you don’t go overspend. Once you have a clear picture of where you are actually spending your money each month, you will be able to assess whether your spending actually reflects your priorities.

2. It helps you identify waste.

If you’ve never budgeted or tracked your expenses before, you might be surprised at how much money you probably waste each month. For example, maybe you stop for coffee every morning on the way to work, without thinking that this habit can easily add up to $100 a month to your expenses. Over a year, that adds up to $1200. What could you do with an extra $1200 each year? In five years it would be $6000. That’s a downpayment on a home or a really nice vacation. Once you have kept track of where your money is going, you will be able to identify spending that isn’t in line with your financial goals and redirect that spending to help you meet goals that are a priority for you and your family.

3. It helps you make financial decisions.

By allocating a certain amount of money to each category, you can better make financial decisions. For example, a budget can help you identify whether you’re spending too much in one category or not enough in another. Based on this information, you can make better financial decisions when shopping or planning with your family.

4. It helps you reach your goals.

Most of us have financial goals, such as paying down debt, saving for college (or retirement), saving for a car or a downpayment on a house, or building up an emergency fund. The budgeting process can help you identify those goals, and rank them in importance. It is good to have a few short term, easy to accomplish goals that will help keep you motivated, as well as the more expensive medium and long term goals. The longer-term goals are likely the most important ones for your future well being, but they are also the hardest to stay on track with. Your budget will help you to stay on track with all your goals, and to reach these goals faster.

5. It keeps you from accumulating too much debt.

Oftentimes, we run up debt because of a lack of planning. We end up putting purchases for which we could have saved, onto credit instead. If we save for those kinds of purchases, we avoid accumulating unnecessary debt, and the actual cost of the items ends up being less. The cost is reduced by saving for the purchase because, instead of paying high interest on borrowed money, like a credit card, your money can actually earn interest as you save it to meet future needs. Your budget should help you identify those needs that need to be saved for, and give you a plan to meet those needs. So, rather than using credit to buy that new appliance or things that come up annually like school supplies or insurance fees, you save the money monthly and pay cash when the time comes.

Remember: the primary objective of a budget is to help you spend within your actual income, so you don’t have to rely on credit cards and build up debt.

6. It gives you a clear picture of your finances.

By monitoring how much money you have coming in and going out each month, you can better assess your finances and make adjustments as necessary. For example, if you’re barely scraping by each month, a budget can help you know where you can afford to trim your expenses, or if you need to look for an additional source of income.

A budget should be a tool for your use. You need to keep it updated and current. As your situation changes, so must your budget. An out-of-date budget, that does not reflect your current situation, will end up being ignored, and if it is ignored, it will not be useless — an old tool to throw out. Keep it current, and it can give you the roadmap to future financial health.

7. It provides peace of mind.

A budget gives you peace of mind by helping you know exactly how much money you have at any given time. It takes the guesswork out of spending, so you know whether you can afford a purchase, and if not when you will be able to afford it. It makes annual expenses like school supplies, insurance, gifts, etc. much less stressful because you will have money set aside for those.

These seven reasons can motivate you to start budgeting and take better control of your financial future. Financial health starts with clear goals and a plan to meet them. Your budget is the tool to make that possible.

Free Consultation!

Contact us for a free consultation to see how we can help you get out of debt.

Leigh C. Taylor, LIT

Leigh has been working in the insolvency field since 1975. He is a graduate of the University of Manitoba. Leigh began his career as an Official Receiver with the Office of the Superintendent of Bankruptcy. He is a Certified Professional Accountant, and he attained his license as a Licensed Insolven Read More Leigh has been working in the insolvency field since 1975. He is a graduate of the University of Manitoba. Leigh began his career as an Official Receiver with the Office of the Superintendent of Bankruptcy. He is a Certified Professional Accountant, and he attained his license as a Licensed Insolvency Trustee in 1980.Leigh has been a member of the Canadian Association of Insolvency and Restructuring Professionals (CAIRP) since its inception. He is a Past President of several organizations, including the Manitoba Association of Insolvency and Restructuring Professionals (MAIRP), the Armstrong Point’s Association, and the Manitoba Opera. In addition, he has served for numerous years in leadership roles in Winnipeg churches. Close


Confidential Consultation with our Licensed Insolvency Trustee

    Contact Us

    Start getting out of debt today.