What are the benefits of budgeting?
Managing your money well is all about careful planning. It's easy to let your spending get out of control if you don't know exactly how much of your money is 'disposable income'.
Putting together a budget to help you keep on top of your finances has a whole host of benefits. Here are some of them:
Disposable income:
Cabot Financial states that disposable income is the amount of money that you and your family have available for spending and saving after direct taxes (such as Income Tax, National Insurance and Council Tax) and all outgoings have been deducted. It includes earnings from employment, private pensions and investments as well as cash benefits provided by the government.
1. Gives you control over your money
Knowing that you have a good budget to fall back on each month will give you the confidence and peace of mind of knowing you're in control of your money. It beats the 'spend and hope' approach where you don't pay attention to your bank balance and hope there is money left in your account when you come to pay.
2. Helps you focus on your financial goals
Planning for the future and working to an objective allows you to plan big purchases, like houses and cars, without worrying you'll miss the mark. Sticking to your budget and putting money aside will bring you a step closer to achieving your financial goals.
Plan ahead: a benefit of budgeting is that it helps you spend less on everyday expenses
3. Keeps you on top of what you're spending
You'll be surprised at how much you spend on essential things, like bills, rent/mortgage, and food. Most of us will have vastly underestimated our monthly or weekly spend by forgetting how much we spend on other items like TV license and commuting.
Laying all of your expenses out clearly will help you plan better while identifying areas where you might be able to save some money. Changing your mobile phone contract or switching to a more affordable tariff with a new energy provider are just two areas where you can make some savings.
4. Makes it easier to stay aware of your savings and debts
We have already said that the budget planner helps you stay on top of what you are spending but what about the money you are putting away or using to pay off debts? A good budget will keep you aware of when your debts will be paid off and identify when you may have additional money that you can redirect into savings or spend on an occasional treat.
5. Helps you to save for unexpected costs
It's always safe to expect the unexpected. If your boiler breaks in the middle of winter, or your oven stops working, you'll want to make sure you have some money set aside to deal with it. Careful budgeting can help take the sting out of unexpected bills by making sure you have a pot of money to fall back on when you need it the most.
Sometimes the unexpected happens, so it's important to set some money aside just incase.
6. Makes talking about money with your family easier
Budgeting is easier when there’s open communication between everyone involved and your family lends their support for your efforts. Talking to your family when you need to tighten the purse strings not only ensures they’re aware of financial constraints, but also brings them in as part of the solution. Working together with honest and open communication is immeasurably helpful when it comes to healthy spending.
7. Shows you where money issues are likely to come from
Much in the same way a guard dog alerts you to danger before you see it, a good budget will show you where the risks to your financial stability are before they become a problem. If things look a little tight, you can address them before they get out of control. Thinking proactively about your spending and saving will save a lot of stress and worry and in the long run.
Working together: Creating a budget plan can help families work together when it comes to healthy spending
8. Helps you figure out what you can borrow
Despite your careful planning, there may be times when you will need to borrow money on a credit card or via a loan to keep things ticking along. It is absolutely essential to have a good understanding of what you can afford to pay back each month before borrowing money. Your budget will be crucial here and an essential tool to help you work out how much you can comfortably borrow, and then ensure your repayments are taken into account amongst your normal outgoings.
If you're a Cabot customer, why not use our Budget Planner to help you get on top of your finances?