It seems like everyone in the personal finance space is always preaching on the merits of budgeting, but we need to take a step back and ask, “Is budgeting really necessary?” There is always a lot to do. Should we sit down with our smartphones or spreadsheets and every month or even every week take care of our finances?
GOBankingRates reached out to the experts and found that overwhelmingly, yes, according to financial experts, we all really need to budget, and thoroughly! Here are 10 reasons why experts insist you have a budget.
Take the control
“Money has a strong grip on our emotional health,” said Julian Schubach, senior vice president of wealth management, Financial ODI. “Instead of letting money remain a weight on your shoulders, create a budget so you know how your money is allocated. Creating a budget will allow you to regain control of your finances and give you peace of mind as you will have the ability to see areas of overspending and undersaving.”
To Reach Your Financial Goals
“You need to budget to increase your ability to reach your financial goals,” said Alissa Krasner Maizes, licensed attorney, financial planner, and founder of amplify my wealth. “Most likely, you have thought about your dreams or goals related to finances, such as when you want to become optional at work, buy a house or rent a property, pay for school or eliminate your debt.”
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To monitor your cash flow
“According to Finder.com data, 64% say inflation has affected their saving and spending habits,” said Laura Adams, MBA, money expert at search.com. “Budgeting requires you to watch your income and expenses and make adjustments very closely. For example, if you want to save more but spend too much on discretionary expenses like dining out or entertainment, you’ll know exactly where to cut back.”
To uncover areas of overspending
“We are all guilty of spending too much on specific items we enjoy, like dining out, hobbies, and subscription services,” Schubach said. “These variable expenses continue to expand over time if left unchecked. A budget can help you get a good idea of what you’re spending on these items, and then you can decide where to cut and how much to reallocate those funds to savings or other expenses that are more important. ”
To understand what you can afford
“A lot of people put themselves in a bad spot when they make a big purchase, like a house or a car,” Schubach said. “Loan providers often provide pre-approval for amounts at the top of your spending capacity. Just because you’ve been approved for a big loan doesn’t mean you have to spend that much! Keeping a budget will provide greater clarity on what you can afford based on other factors, such as variable expenses and retirement savings contributions not included in the loan provider’s calculation. A budget will help you understand the amount that best fits your current plans, rather than simply spending the maximum allowed by the lender.”
To pay for next year’s Christmas gifts
“Most people start the New Year with a hangover of holiday debt,” Adams said. “Resolve to add holiday gifts to your budget so you can celebrate with less or less credit card debt.”
To plan for retirement
“Following a budget lets you know how much extra income you have to contribute toward retirement,” said Carl Grande, founder and senior advisor of large capital management. “Most people don’t pay for their future at all, but with a budget you can find out how much you can save/invest each month for retirement.”
To eliminate the debt
“A budget also helps with debt elimination because you can speed up payments on one debt and continue to pay everything else with the minimum payment,” Grande said. “It’s a term called ‘debt snowball,’ coined by Dave Ramsey.”
Using this process, you would put most of your down payment money on the smallest debt and then only pay the minimums on everything else. This way, you should see small gains sooner rather than later.
To combat financial stress
“Creating a budget is important because it can often be a very effective tool in helping you combat financial stress, which is often very difficult to shake,” said Lucia Jensen, CEO of WeLoans. “And if left unchecked, it can often linger in your thoughts and turn into chronic stress that negatively affects your health over time.”
To stay afloat during difficult or uncertain times
“Creating a budget is the most guaranteed way to stay afloat during financial difficulties and economic uncertainty,” said Andy Kalmon, CEO of benny. “Without a budget, it is very difficult to fully understand how much we spend and how little or how much it detracts from our financial stability. Our consumption as people has increased tenfold in a very short time, and the budget will help us limit our consumption to a more sustainable amount. People need to create a budget if they want to create any type of blanket for themselves in the future. Budgeting is just as important for low-income people as it is for high-income people, but it’s extraordinarily helpful for those with less money who need to spread their savings over a larger threshold.”
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This article originally appeared on GOBankingRates.com: 10 Reasons Experts Insist You Should Have a Budget