Why Is Budgeting Important?

If there were a practice you could employ that made it easier to achieve your goals while simultaneously protecting you from running short on money at inopportune times, would you make use of it? Well, that’s what budgeting is.

When done correctly, budgeting can keep you out of financial trouble by avoiding impulse buys and running short on funds before all your bills are paid. Even better, there are a number of “hidden” benefits to budgeting that positively impact your life over time, including building good credit Discover what makes budgeting important and how a good budget is an essential tool to realize your short- and long-term financial goals.and developing confidence in your financial decision making.

The best part about budgeting is that it doesn’t cost you anything: Anyone can do it. All you need is the willingness to objectively assess your spending habits and the time to sit down and develop a budget that works for you.

In this article, we’ll take a close look at what makes budgeting important and all the reasons you should consider putting one into action.

Budgeting Keeps You Focused on Long-Term Goals

You likely have several long-term goals that involve hitting certain financial milestones. Maybe you’re saving up to put a down payment on your dream home, or maybe you want to build up a college savings fund that enables your child to go to college with minimal student loans.

Whatever your long-term goals might be, by working them into your budget, you can keep yourself focused on achieving them. Without a budget, it’s easy to forget to move $50 to the savings account every month so you can take that European vacation someday. Instead, that money risks getting spent on an impulse buy or a meal out.

However, if you make that monthly savings an item in your budget, you’ll remember to work toward it every single month. In this way, budgeting helps you put a definitive date on achieving your dreams so that they aren’t forever “someday.”

Budgeting Encourages Good Spending Habits

With any budget, it’s a good idea to “budget to zero.” This means that every dollar of your income gets assigned to something, whether that’s bills, discretionary spending, savings, or debt repayment. A benefit to budgeting to zero is that it encourages good spending habits.

When you know where every dollar you make is going, it doesn’t leave room for impulsive, unplanned spending. Things like fear of missing out on a good deal during a big sale start to have less effect on you. You know that if you give in, you risk busting your budget and having a monetary shortfall later.

After a while, these good spending habits become second nature. You learn that if you’re tempted to buy something you hadn’t planned for, it’s a good idea to sleep on it. Sometimes a bit of distance is all you need to realize that maybe you don’t need to make that big, unexpected purchase after all.

These good spending habits don’t just apply to big purchases; the same principles go for all the little purchases you’re tempted to make that are just a couple of bucks here and a few dollars there. You understand that if you want that daily latte, it needs to be a line item in your budget because it adds up over time.

Budgeting Builds Good Credit

Successful budgeting can absolutely help you improve your credit score over time. A proper budget ensures that you pay all of your bills and obligations before you start making discretionary purchases. This means paying your bills on time every month, which will, over time, positively impact your credit report.

Good budgeting will also keep you from getting into trouble with debt. You should know what you’re planning to buy with a credit card every month, as well as have a plan for how and when you’ll pay the balance down.

Having a good handle on your credit card spending means you also have a handle on your debt-to-income ratio. This keeps your credit score healthy and will be a mark in your favor if you plan to apply for a personal loan or mortgage at some point in the future.

Budgeting Makes Retirement Saving Happen

Saving for retirement is easy to procrastinate on, and it’s a problem that many Americans grapple with. Retirement can seem like a long time away… until it’s not. Saving for retirement is a long-term effort, and you want to position yourself for success by ensuring your funds last throughout your retirement years.

Budgeting is one of the best ways to ensure that you save for retirement. The need to save for retirement becomes much more concrete when it’s a regular item in your budget. Because the “savings” items in your budget should happen before any discretionary spending, every month the amount you’ve designated for retirement savings should happen like clockwork.

As with other long-term goals, budgeting helps you stay focused on your retirement goals, no matter how far away retirement might be. This has the added benefit of giving you peace of mind, knowing that you’re on track to hit this important financial goal.

Budgeting Helps You Build an Emergency Fund

An emergency fund is an important financial asset that everyone should have, as it acts a bit like an insurance policy for your budget. For example, if you have an unexpected medical expense that occurs mid-month, you can pay for it with your emergency fund. This allows you to leave your regular monthly budget intact, and all of your payments and savings occur as normal.

Without an emergency fund, that unexpected medical expense could wreak havoc on your budget. You might have to forgo your savings, debt repayments, and discretionary spending in order to cover it. This, in turn, can prolong the amount of time it takes you to hit your savings and debt repayment goals.

The beauty of a budget is that you can build saving for an emergency fund into it. Simply decide how large of an emergency fund you want, how long you want building the fund to take, and then enact it as a line item in your budget. This emergency fund calculator can help you plan yours and work it into your monthly budget.

Once you hit your savings goal for the emergency fund, you can either keep growing the fund or free up that slot in your budget for something else. If you ever need to tap into your emergency fund, you simply build it back up by working it back into the monthly budget.

Budgeting Is Good for Your Mental Health

In time, you’ll likely find that budgeting can actually boost your confidence in decision making. When you budget, it removes the guesswork from your finances, especially if you budget to zero. You know what you can afford and when you’ll be able to afford it.

This knowledge can provide you with a great deal of peace of mind.¹ You won’t have to grapple with financial anxiety, unsure if you’ll be able to cover all of your bills this month. Your long-term goals will also be very real things to you, and you’ll know exactly how each of those goals is progressing.

In this way, budgeting can be an overall net positive for your mental well-being, providing you with confidence and assurance.

Enjoy the Benefits of Budgeting

Budgeting is important because it can provide so many positives to your financial well-being that impact many other areas of your life. Developing the right budget starts with the right financial tools, which is where Hancock Whitney can help.

When you download our mobile app, you also download a number of budgeting tools that you can use in conjunction with your checking and savings accounts to keep your finances on track.

To get started with opening an account, please visit our "open an account" page.