What is the main purpose of a budget?

It is an opportunity for you to plan ahead financially, create and organize your financial goals, and track your spending habits. ALL of this happens so that you can improve your financial situation.

What is a budget?

A budget is a spending/savings plan. A budget allows YOU to be the boss. YOU can tell your money what to do and where to go…rather than the other way around.

Why is budgeting important?

We all have expenses, right? I bet you have all of those usual pesky bills – utilities, rent/mortgage, insurance, car payment, etc.

Do you struggle with just making the above payments? What about saving for a vacation, new sofa or getting your nails done? Are those wants way out of your reach? Or, do you put everything on a credit card, make the monthly payments, and think about the interest later (or never).

A budget is important for a few reasons:

• Establish a spending plan so you NO LONGER spend more than you earn.
• It can help you figure out where you are over spending.
• Helps you shift from a credit card mindset to paying cash for everything.
• Puts you in the drivers seat. You are no longer a slave to all of the bills sitting on your desk and trying to figure out which ones to pay now and which ones can wait until next month.
• Once your spending plan is established and all of those back bills are paid, you now can save money for YOU. So that you can buy those new shoes guilt free…cause you saved the cash

Did you know that money, or the lack of money, is a total stresser? It is the #1 reason behind most divorces. The fights start about money…and then escalate from there.

Did you know that the lack of money might not be because your income is low? It might be that your expenses are too high.

DID YOU KNOW THAT AN EXCESS OF SPENDING COMES FROM A LACK OF EDUCATION?

I used to be a budget counselor. I would meet with single women (widowed and divorced) and try and help them make sense of their money. In some cases it was not the lack of income that was the problem….it was the excess of spending.

I realized that the excess of spending came from a lack of education. As a result, they really had NO idea how to manage their money. $200 in the checking account meant $200 to spend. They never thought about their auto insurance bill coming due in 3 months or saving for an emergency. Is this you too?

What are the benefits of budgeting?

The benefits of a budget are so numerous. Once you get your budget set up and follow it for 4-6 months, you will be blown away and wish that you would have started sooner.

A budget:

• Will free up your ‘should I or shouldn't I' decisions. If you budgeted the money, saved the money, and thought about your purchase….then yes you should.
• Gives you the opportunity to save for your future. Yes, you will get old. And yes, you will need a place to live and money to pay for your food and other expenses. YOU need to save for that future.
• Lets you be the boss. And, in my humble opinion, there is nothing more satisfying than being the boss of my money.
• Allows YOU to make your own financial goals. And then you can save for those goals.
• Helps you save for emergencies. Because something unexpected is always going to happen financially.
• Sheds light on those bad spending habits. $300 a month on cigarettes can go a long way towards saving for a vacation, not counting saving your lungs and the lungs of others around you.
• Reduces the stress. You will no longer have to lie awake in bed at night wondering how you will feed your family, keep the lights on, or put gas in the car for work.
• Teaches you how to save. I told my husband, when I started to budget, that I wanted to be the queen of cash.
• Teaches you delayed gratification. We live in a world of instant. Saving money for things removes that ‘now' mentality and teaches you to wait.
• Will educate you so that in turn you can educate your own children and grandchildren. Because, if you don't teach them someone else will. Or, they might not be taught at all.

One important thing to keep in mind…You can't spend more than you earn!

If you are paying cash for everything… you can only spend the money that you have in your wallet. Buying groceries and the cashier wants $67. You open your wallet and only have $63. You need to put something back. Because you don't have the cash in your wallet.

So, what if you took that mindset with you when purchasing everything. Including buying a car. You saved and saved $12,000. That is what you have. The beauty about NOT spending more is that the salesperson can't talk you into upgrades, warranties, or fancy tires. $12k is all you got so that is all you can spend. Another purpose of a budget!

Is budgeting a quick fix?

Unfortunately a budget is a long haul endeavor. If you are in credit card debt (or any other debt besides your mortgage) you need to pay off those bills first. You then need to save for an emergency fund. Once those things happen the magic happens. You are now saving cash for you and you alone.

Grab this FREE ‘How to Stop Overspending' Worksheet. Complete with a few tips for you. Click the button below.

Purpose of a budget:

1). Identify spending habits.

Spending becomes a habit. Something that you don't think about…just do. You may be used to going to Starbucks every day for your decaf latte…that might cost $4.85 – 5 days a week. Do the math…x 5 days a week, 50 weeks a year – you have spent $1212.50…not counting the petite vanilla scones you bought too.

Once you identify your spending habits and determined your spending priorities you can then make a change. Bring coffee from home. Cause $1200 can take the whole family on vacation, right?

2). Eliminate debt.

Debt is a soul sucker. Yup…it hangs over you like a dark cloud. Just knowing that you owe, owe and owe some more is rough. But, what about all of the interest you are paying. Interest that could be money in your pocket!

Once you identify your debt a plan can be put in place so that you can pay it all off.

3). Put a plan in place.

In order to pay off debt, pay cash, and save for your future you need a plan of attack. You need something concrete in hand that you can refer to for each and every $ you spend.

4). Reduce Financial stress.

Lack of money can cause many sleepless nights. It can also lead to excess drinking/drug use. Fights ensue. Kids get caught in the crossfire of all those bad financial decisions. Your plan. The one that you will put in place, gives you a road map to your financial freedom. Your plan is your way out of the stress.

5). Plan for your future.

As I said earlier, you will get old (if you are fortunate). You will need a place to stay, food to eat, a car to drive, and money to pay your bills. If social security is still around that may help. But, what if your social security check does not cover your expenses – then what? One of the most important purposes of a budget is to plan for your old age.

6). Watch your savings grow.

When working your financial plan, one of your goals is to be debt free. Once you are debt free you can begin to save. You can save for all kinds of things. Your future. A vacation. A new-to-you car. New shoes, organic apples, or a lunch date with your friends. You can create savings goals. And start saving! And then you can watch those savings accounts grow and grow. You too can be the queen of cash.

7). Improve self-discipline.

When you are living on a budget you will learn to say no. Or, not now. Impulse purchases will be eliminated. You will shop with a list and stick to the list. You will teach your kids the value of delayed gratification. You will be able to say ‘I am sorry…but those Devil Dogs are not in the budget today. Would you like to help me save some money so we can buy them next week?'

8). Prioritize your expenses.

Once you determine how much money you have coming in and what bills you need to pay PLUS your savings goals, you can figure out where the priorities lie. Which is most important as it pertains to interest payments, debt stress, emergencies and savings dreams/goals.

9). Minimize Financial Arguments.

One important things to do before getting into all the nitty gritty detail and purpose of a budget – If you have a partner make sure you are on the same financial page. If not on the same financial page, talk it out and agree. Without agreement you will fail. The thought process needs to go from ‘My husband won't let me' to ‘It is not in the budget at this time.' An ALL in mentality.

10). Achieve your dreams.

Do you dream about things? Like maybe having your own pool? Or having a fancy wedding? Or having a new kitchen table? Or maybe even having a house with air conditioning?

Your dreams can be met with a financial budget. You will put a plan in place and stick to the plan. You will pay off ALL your debt. You will determine your priorities which then match your spending habits. You will exercise spending self-control. You will then save, save and save some more. And YOUR financial dreams might come true.

But, without a plan in place…there really is no hope of achieving your financial goals, is there? One BIG reason that a budget is so important.

Let me ask you…

Let's say you wanted to drive from Washington DC to Disney World in Florida for a vacation. What would you do? Would you:

• Find a hotel? Or hotels…you might want to spend a night on the way there and the way home to break up the drive.
• Buy your Disney tickets in advance? After all the research on best prices, fast pass prices and how to use them?
• Pack your clothes? After washing and folding. Making sure you had sunscreen, comfy shoes, hats, socks, bathing suits and all else that goes on a vacation with you?
• Buy a map or GPS your trip? Because you don't want to waste time getting lost, right?

In the above scenario what really happened? Your researched. You organized. You made a plan.

You made a plan in advance. Because YOU KNEW:

You could NOT get to Florida by driving on 85N.
You could NOT have any fun without clothes.
You knew you needed a place to sleep.

The same applies to your finances. Make a plan. Stick to the plan. And I guarantee that you will achieve your goals!

What is the purpose of a budget?

Everything and anything that has to do with YOUR money. YOUR dream. YOUR goals. YOUR safety and security. YOUR family. YOUR stress level. YOUR…everything. Money is the underlying pin in all you do.

Need more to read? Check out ALL of the posts in the Positively Jane ‘Budgets and Money' section.

The video below is a great brain storming session as they discuss – ‘What is the Purpose of a Budget.'

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