Personal Finance Basics: Key Purposes of Budgeting Systems

Do you understand why budgeting is so important?

I believe a budgeting system is crucial to properly managing your money.  Without such a system, you have no plan for using your money wisely and no insight into where your money is going.  You lack financial control.

Establishing some sort of budgeting system is a very basic necessity of personal finance.  I’ve been steadily using a budget now for several years and it has saved my life financially speaking.

All budgeting systems have the same key purposes

There are a ton of different and effective ways to budget your money.  The specific budgeting system that you choose is based solely on your personal preference.

The system should fit your needs and be easy for you to understand.  If it’s not, then I suggest you try something new because they all accomplish the major purposes we need.

The key is to find a budgeting system that you can stick with over the long-haul.  This is the most critical and basic success principle in personal finance.

The specific system doesn’t matter.  What matters is that you create a budget and use it!

My experience with a couple of budgeting systems

I originally set my budget up using Mvelopes Personal.  It was a great online system that worked perfectly for me at first.  However, after about a year, my credit union changed something on their end and Mvelopes could no longer download my transactions. 

I worked with their technical support, but we could never come up with a solution short of entering the transactions manually.  This was just too time consuming. 

As a result, I posted an article asking for suggestions for a new personal finance system.  I received many good recommendations, but ultimately I switched to using YNAB Pro.

YNAB was a fantastic choice for me.  I can import my transactions very easily and all is well again.  YNAB totally fits the way that I want to budget my money.

Here’s the point I’m trying to make.  If your budgeting system makes you want to stop budgeting, then you need a new system!  Find what works for you.

People use everything from spreadsheets to paper to online systems to traditional software.  Again, I recommend you use whatever you’re comfortable with because they all accomplish the same key purposes.

The seven key purposes of budgeting systems

The value and importance of a budgeting system is the purposes it fills.  These purposes are crucial to being successful with money.

Here are the key purposes of budgeting systems:

1.  Planning

A budgeting system provides a place for you to create a spending plan.  You can assign every dollar a job in advance to ensure you get the most out of your money.  Budgets aren’t intended to restrict your spending.  They are meant to guide it and to ensure you meet your financial objectives.

2.  Control

A budget provides a way for you to track your actual spending so you can verify you are following your plan.  This gives you the tool necessary to make corrections.  Most people are amazed at how much they spend in certain categories once they start monitoring it with their budgeting system.  Control is an essential element of a good budgeting system.

3.  Organization

It is hard to win at anything if you aren’t organized.  This is especially true with money.  You’ve got to get your act together to make the cash you earn work for you.  In addition, a budgeting system makes it easier for you at year-end to gather up what you need to do your taxes, etc.  It serves as a perfect record-keeping system!

4.  Communication

A lot of marriages end because of money woes.  A budgeting system gives you a platform to communicate effectively about money.  Everyone can see exactly how much cash you have and where it is being spent.  This helps to keep all parties on the same page and working toward the same goal.

5.  Opportunities

A budget clarifies exactly what assets you have available to capitalize on opportunities as they arise.  You’ll know immediately if you can afford that new television that just went on sale or if you have the money to buy a new house.  You can spend yourself into a deep pit that is very difficult to escape if you don’t budget your money.

6.  Frees Up Time

A budgeting system actually makes it easier and less time-consuming to manage your money.  You have everything you need to know right at your fingertips.  Time is one thing that you can’t make more of so why waste it fumbling around with your finances?

7.  Uncovers Lost Money

Budgets will help you identify money that is being wasted and lost.  You will almost certainly identify ways to recover lost dollars with your budget.  You will trim unnecessary expenses and re-purpose your money to serve you better.  This is a very exciting reason to implement a budgeting system!

A budgeting system will give you power over your finances

Budgeting systems serve some very important purposes.  They enable you to have insight, control and efficiency when dealing with your money.  The value I get from my budget far exceeds any downsides.  It is an indispensable tool in personal finance management!

What value do you see in using a budgeting system?

Photo by nDevilTV

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