The Purpose of a Budget and 10 Awesome Reasons You Need One

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Are you wondering what really is the purpose of a budget?  Maybe you are just starting your personal finance journey and researching everything you can about budgets.

Or maybe you are on a mission to get your financial situation under control and want to know all about budgeting, including the purpose of a personal budget and the benefits of having a budget.  

You came to the right place!  I am going to tell you the purpose of a household budget and lots of reasons to have one.  

I also have a post about how to create a budget, if you are looking for a step-by-step approach to making a budget.  

Also, you can download my free printable budgeting workbook to help you get started making your budget. 

Here is a preview:

Free budget binder printable templates

My budgeting workbook includes the following:

  • A cover sheet for your binder (if you will be using a budget binder)
  • A worksheet to help you get your expenses organized
  • A monthly budget template
  • A large list of budget categories/household expenses to help you to not forget anything

You can download my free budgeting printables here.

money bag and stacks of money

Disclosure: This post may contain affiliate links.  If you click and make a purchase, I may receive a small commission at no extra cost to you.  As an Amazon Associate, I earn from qualifying purchases.  You can read my full disclosure here.  

What is the purpose of a budget?

The purpose of a budget is to develop a plan for how you are going to spend your money.  And having a spending plan is so important for your overall financial wellness.

Controlling your spending and living below your means is the key to reaching your financial goals.  If you spend more than you make, how will you save and invest money for your future?

But creating and sticking to a budget is not easy.  Your budget needs to be realistic for your situation.  If you create a budget that is so strict that you can’t follow it, you will be setting yourself up for failure.  

And I don’t want you to fail.  I want you to succeed.  That is why I created this website.  I want to help people who aren’t familiar with how to manage their money to learn the basics of money management and personal finance.  

Why? Because I was there once too.  

Budgeting is a big part of getting yourself started down the road to financial wellness.  Matter of fact, it’s pretty much the starting point.  

If you don’t have a budget, there is no time like the present to make one.  You can use my free budgeting workbook to get started.

As I said I wasn’t always knowledgeable about budgeting and personal finance!  I had to learn the hard way how to manage money.  

When my husband and I first started our lives together, neither of us knew anything about managing money.  We had quite a bit of debt when we got married.

One of the first things we realized was that we needed a budget.  Our budget helped us quickly be able to see that we were spending way too frivolously.  

Once we started budgeting and spending less on things we didn’t need, we were slowly able to start paying off our debt and saving money, which are two great benefits of having a budget.  

Speaking of benefits, here are 10 reasons you need a budget in your life!

The purpose of a budget: woman working on budget on laptop

10 Awesome Reasons You Need a Budget

#1 You control your money, not vice versa

When you create a budget, you are deciding how you will spend your money.  Assigning all of your money a “job” and putting it to work in a way that benefits your situation is so important.

Because when you are in control of your money, you know exactly where all your money is going.  If you don’t know where your money is disappearing to every month, you are more likely to go into debt and start living paycheck to paycheck.  

This is when your money starts to control you.  Living paycheck to paycheck is a vicious cycle that can be hard to break once it starts.  

Creating a budget that works will help you avoid living paycheck to paycheck.

#2 Helps you free up money to pay off debt

As I said, the purpose of a budget is to create a spending plan for your money.  When you know where all of your money is going, it makes it easier to make changes to your spending plan so you can free up money to allocate for something else, like paying off debt.

For example, say you have been allocating 10% of your budget to entertainment expenses.  But you had an unexpected medical bill come up.  

You can easily reduce your entertainment budget to 5% so you could use the other 5% to pay down your medical bill.

If you didn’t have a budget and you weren’t aware of the amount of money you were spending on entertainment, it would be hard to know where you could realistically cut back to pay off your bill.  

#3 Boost your savings

A budget can also help you increase the amount of money you are putting away to save for upcoming purchases or investing for the future.

If you have a budget, you will be aware of how your income relates to your expenses.  So if you know you have a tight budget where there isn’t much extra money after your expenses are paid, you can make the decision to either cut back on certain expenses or find ways to increase your income.  

In order to save up for a large purchase (like a down payment on a house or a car), you will be more successful if you both cut back on expenses and increase your income.  

A budget will help you easily spot expenses you can cut back on and know how much extra you have at the end of the month.

Purpose of a Budget: blank notebook, pencil, and laptop on table

#4 Determine areas you are overspending on

When creating your budget, you can use percentages of your income as a guideline for determining the dollar amount you should be spending on each category.

Here is a sample of budget percentages from thebalance.com:

  • Housing: 25-35%
  • Insurance (including health, medical, auto, and life): 10-20%
  • Food: 10-15%
  • Transportation: 10-15%
  • Utilities: 5-10%
  • Savings: 10-15%
  • Fun (entertainment and recreation): 5-10%
  • Clothing: 5%
  • Personal: 5-10%

So let’s just say your monthly household income is $3,000.  According to these budget percentages, your food costs should be between $300 and $450 dollars a month.  

That works out to $75 to $113 dollars on groceries a week, based on a month with 4 weeks in it.

That’s not that much depending on the number of people you have in your household.  So if you have been spending $150 a week, you will quickly realize you are overspending on your food expense.

Luckily the food budget happens to be one of the easiest parts of a household budget to control. So if you find your food expenses have been running high, there are plenty of ways to reduce your food spending.

Not to get off-topic, but meal planning is an awesome way to get your food budget under control.  I am a huge fan of meal planning and have a few posts about the topic.

Here are some of my posts if you are interested in learning more about meal planning:  

Helpful Tip: If you absolutely hate meal planning or you have tried it and you just can’t seem to figure out a system that works for you, you should take a look at $5 Meal Plan.

$5 Meal Plan is a meal plan service that sends you weekly meal plans right to your inbox and the grocery list for the meal plan already done for you!  

All you have to do is check off the things you already have and head to the grocery store to get the rest.

Most of the meals work out to be around $2 per person.  And it’s only $5 a month!  

So if you would like to check it out, they have a free 14-day trial you can sign up for here.  

Okay back to the purpose of a budget and the benefits of budgeting!

#5 Helps you live a more frugal lifestyle

As I said earlier, a budget helps you to live within your means.  Creating a budget encourages you to determine your spending priorities.  

As you determine your budget percentages for your budget categories, you are deciding which categories are the most important to you. 

Which categories will you assign a higher percentage of your take-home pay and which will you try to cut back on?

You are being intentional with how you want to spend your money.  And living frugally is all about aligning your spending habits with what is most important to you.

I am mainly referring to your non-essential expenses for this, not your essential expenses.  Examples of non-essential expenses are entertainment, self-care, travel (could be earmarked in a sinking fund), and clothing.  

Examples of essential expenses are housing, utilities, and insurance premiums.  Yes, there are ways to cut back on essential expenses, but you can’t usually just cut them completely from your budget.

As I said, prioritizing your spending to align with your values and the things that are important to you is the backbone of a frugal lifestyle.  

For example, we prioritize taking family vacations over frequently eating out at restaurants.  So we earmark money for our vacations in a sinking fund in our budget.  

We don’t spend money on going out to eat so we can put money away to take a nice vacation every year.  

Purpose of a budget: journal and plant on table

#6 Reach your financial goals more quickly

Creating and sticking to a budget will help you progress toward meeting your long-term financial goals. Meeting your money goals comes down to being in control of your money and effectively putting your money to work for you.

It is a good idea to frequently revisit your budget to ensure it is working.  By assessing your money situation on a continual basis, you will notice when you need to adapt or modify something.  

This will help you to keep improving your finances and working toward your goals.

#7 Decrease financial related stress

The purpose of a budget is to monitor your income and spending so you know when you need to make changes.  If you don’t have a budget, you are setting yourself up for overspending, debt, and living paycheck to paycheck.

And that can cause some major financial-related stress.  So why not avoid that stress altogether by making a budget you can realistically stick to?

If you would like to download my Budgeting Workbook, you can do so here!  

#8 Less fighting with your partner

Money is a huge source of fights in a relationship.  This is especially true when you and your partner have different views on spending.  

Sitting down together to develop a budget you both can agree on will help to reduce the arguments about money.  

It’s important to compromise in a relationship, and compromising about how your money will be spent is no exception.  Creating a budget together is a way to figure out a spending plan that each partner can be happy with.  

#9 Achieve financial wellness

Having and sticking to a budget is a stepping stone to financial wellness.  Financial wellness is essentially when your finances are in a healthy state.  

You are able to pay your bills on time, save money, handle unexpected expenses without difficulty, and be on track toward meeting your financial goals.    

If you have achieved a state of financial wellness, you aren’t stressed about money and you don’t lose sleep at night over money.  

A budget can help you get there!

#10 Reach financial independence

Lastly, following a budget over time can help you reach financial independence. 

Financial independence is when you have enough income through investments or other forms of passive income that you no longer need to work for a paycheck.  Your passive income will pay your living expenses for the rest of your life.  

Have you ever heard of FIRE?  It stands for Financial Independence Retire Early.  It is a movement where you save and invest aggressively to be able to achieve financial freedom so you can quit working your job to pursue other interests.  

Many people striving for financial independence (and FIRE) save and invest 50% or more of their income!  That would be very difficult to do without having and sticking to a budget.

Final Thoughts on the Purpose of a Budget

In short, the purpose of a budget is to help you get your monthly money situation organized so you can easily monitor your spending habits to ensure you are progressing toward your short-term and long-term financial goals.  

As you can see there are many awesome benefits to having a budget.  From living without financial-related stress to achieving financial wellness, the benefits are real.  

So if you are currently without a household or personal budget, taking time to create one you can stick to will help you improve your financial situation over time.

You can download my free Budgeting Workbook to help you get started with creating your personal budget.  

What is your favorite benefit of budgeting?  Let me know in the comments!

lap top and open notebooks
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