What is a budget?
A budget is a spending plan that helps you take control of your finances and get the most for your money. A budget shows your income (money coming in) and expenses (money going out) for a specific period of time (for example a week, or a month).
No matter what age or stage in life, budgeting is a good idea.
Here are 10 reasons why:
- Knowing how much money is actually coming in will help you buy what you need most within your income. Knowing what money is coming in allows for planning on how to use your money. You will be able to make decisions to spend on the things that are important to you. Consider all sources of income like work, government programs/benefits, and interest. To start the process, read Creating a Budget.
- Budgets identify expenses and where money is being spent. Understanding where your money is going is important. It will help identify if money is being spent on needs (such as rent/mortgage, food, daycare) or wants (things like new clothes, restaurants, subscriptions). Read more in Understanding Your Expenses.
- Budgeting helps to control spending. Impulse or unplanned purchases become more obvious when you are tracking where money is spent.
- You will be ready for regular expenses as they come up. Regular expenses that are infrequently paid (maybe paid only a couple times a year like car insurance and kids sports), should be expected and prepared for. Budgeting allows you to put away money every month to save up the amount required for when the expense needs to be paid. Read more about occasional expenses in Understanding Your Expenses.
- Budgeting helps avoid increasing debt. Knowing how much money is available helps you buy within your income. Plans and adjustments can be made to make sure money spent is not more than the money available. Spending more money than what is coming in creates debt, and that can often cause anxiety for people and arguments in families. Read more in Using Credit Wisely.
- Having a budget helps plan for future needs and goals. Money should be set aside and saved for future needs. New goals like a car, tuition fees or a family vacation can be set with real dates and planned savings amounts included in the budget. By planning ahead, future purchases can be made without taking on too much debt. Read more in Saving Money: How Much and What For.
- Emergencies are easier to manage if you are prepared. The loss of employment or large, unexpected expenses like car and home repairs can be stressful. By having some money saved and available for emergencies, you will lessen the impact and increase your ability to cope.
- People who budget worry less about money. Understanding your finances and feeling comfortable about handling money will give you security and a personal sense of relief.
- Budgeting will decrease family arguments about money. When everyone contributes to making the family budget it keeps the whole family on the same page and working together. Agreements on how to spend money will decrease the chance of disagreements.
- Goals are possible to reach when you work together. A family money plan allows everyone to work towards a common goal. By cooperating in how money is earned and spent, success is much more likely to be reached.
To learn more about Budgeting and Personal Finance, see these trusted sources:
Credit Counselling Canada is a non-profit agency that provides help for Canadians looking for a trusted source of information to help them deal with their debt and reduce financial worries.
The Credit Counselling Society provides credit counselling, resources for budgeting debt consolidation options. They also provide educational resources including webinars, workshops and tools for tracking your spending on MyMoneyCoach.
The Government of Canada provides online resources to educate and help you manage your finances, including an interactive budget planner.
Read this article next:
Creating a Budget