What is the purpose of budgeting? Is It Important?

You have no doubt read in a dozen different places that a budget is essential, but why? Well the purpose of a budget is to enable you to really know exactly what your financial situation is at any time.

It’s purpose is to help you make the absolute best of the money you have without resorting to debt and building up large credit card balances.

But what if you earn a decent income, do you still need a budget?

What if you earn a very low income, is there any point in having a budget?

And does having a budget actually benefit you in any way?

YES, YES and YES!

The reason you’ve seen it so often that you should have a budget is because having one really will make a significant difference to your financial situation.

And as for the benefits of budgeting, in my humble opinion the whole point of a budget is to benefit you! But in case you’re not convinced by my opinion, I’ve listed more than a dozen reasons why you need a budget below.

the purpose of a budget is to do what?

The 4 purposes of your budget are:
to plan,
track,
manage,
and improve the health of your finances

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what is a budget ?

A budget in it’s simplest terms is your plan to spend the money you have coming in each month or paycheck.

The main purpose of a budget is to plan your money but a budget is whatever you want it to be. It can be simple, it can be complicated. It can be on a piece of paper (mine was for many years), on a spreadsheet or in a budgeting app.

It’s the income and money you expect to come in each month and the money you expect to flow out again through bills and spending.

Nothing more nothing less.

calculator laying on top of a spread of dollar bills
Understanding your budget helps you budget better

The purpose of a budget

Let’s unpick the 4 purposes of budgeting so you can understand them clearly and see how they relate to you right now.

1. Plan

The devil is always in the detail of a plan. In the simplest terms the purpose of a budget is to be your plan for the money you have.

2. Track

Monitoring your spending and the bills that need paying are you actively making your budget work.

Budgets are not just numbers on a spreadsheet, or in an app, they are (almost) living, breathing things that need to be monitored to make sure they do not go awry.

Or rather, they need monitoring to ensure your spending does not go awry.

3. Manage

Your budget is your plan to manage your money. To help you achieve your financial goals, pay off debt, be able to put food on the table each day.

Unless you are a free-spending millionaire, your money needs managing to make sure you have enough for the whole month and all bills get paid.

4. Improve

We all want to improve our lot in life, whether that’s pay off debt, buy a house or escape from the workplace. Your budget, when carefully planned, managed and monitored can help you do all these things, and more.

It helps you improve your financial well-being, your financial knowledge and opens up new options in the future.

Your budgets main purpose

The number one purpose of a budget is to give you information and knowledge. Information about what money you have coming and and going out. Knowledge about your spending, what you can do with the money you have.

It’s not there to trip you up, it’s your budget, it’s about making it work for you. You create it, you tweak it, you make it work.

notebook with living on a budget written large against backdrop of calculator and money to signify the purpose of a budget is to
Budgets work for everyone

Why is budgeting so important for couples and families?


Budgeting is for everyone, not just single people earning a good income. In fact, in my opinion, a budget is more important for families and those on a low income, because every single cent can make a difference.

Monitoring your budget closely when you are a low income family can make the difference between having enough money to get to the end of the month or running out 5 days before.

In families the purpose of a budget is to get everyone on the same financial page, or at least have a better understanding of where each other are when it comes to spending money.

These are the benefits to families that budgeting can bring.

Eliminates arguments about money

Money is one of the biggest causes of divorce and often at the core is the fact that these couples have not spoken about money in a long time.

Talking about your budget, managing it together and reviewing expenditure are great ways to get more comfortable with money chats.

It might not totally eliminate all money arguments but regular budget talks will most definitely reduce them.

Reduces financial insecurities

In many families and couples, one person either earns a lot less or may even be a stay at home parent.

When your partner is the main breadwinner and money is not abundant, you can become very insecure about your own financial situation and about money in general.

An open budget which you both have input into helps the non-earner see the money coming in as family money.

Keep each other accountable

When you budget as a couple you can keep each other accountable. Knowing someone else is invested in making your budget work means you are going to stick to the spending rules and limits you have agreed to.

It’s easy to justify to yourself that you ‘needed’ something which wasn’t in the budget, much harder to justify to someone else.

Accountability is a great help when a couple is made up of a spender and saver. The spender has less room to hide their spending so will end up doing so less.

Joint focus

Being invested in making your budget work together helps you get on the same page financially.

You don’t have to have the exact same spending patterns and thoughts, but being focused on your future money goals helps you budget together successfully.

Stronger relationship

Having a joint focus and reducing arguments about money have a beneficial effect on your relationships.

The purpose of a budget is to plan and monitor your money but the benefits to your relationships are many.

You feel stronger as a couple, you have joint goals for your future together and you feel more confident about your money, and therefore more confident about your relationship.

financial paperwork with heading of rethinking the budget to signify the purpose of a budget is to
A budget has many purposes

The primary purpose of a budget is to benefit you!

It’s you telling your money what you want it to do and then you going off and spending according to your plan.

By budgeting you are planning for your future, you are building confidence in your ability to manage your money successfully. But the benefits don’t end there, here are 17 more that you need to know about.

17 Reasons why you need a budget

1. Puts you in control of your money

You create your budget, you spend your money, therefore you control your money. A written down budget helps you feel more in control, you are planning for the next month or more so you can visualize what you want to achieve with your money.

2. prioritise your finances

It is possible to manage and save money without a budget but it’s much easier with one. Taking the time to create a budget means you are prioritizing your finances, you are showing to yourself and others that how you spend your money is important to you.

3. Reduces stress

Who hasn’t worried about money at some point? But worrying doesn’t pay the bills whereas managing your money carefully does. Money is one of the top stressors we face so reducing that stress is a huge plus.

When you have a plan for your money, you know your bills are going to be paid, and you have enough money to get through the month, your stress reduces.

4. Get out of debt

Debt is very easy (too easy) to get into but harder to get out of. Planning how you will pay off your debt is something you can and will do when you budget carefully.

You will work out how much you can afford to pay towards your debts each month and make sure those payments are made. In time you will be debt free.

financial paperwork with calculator and dollar bills to signify the purpose of a budget is to
Your budget will help you pay off debt

5. Remain debt free

When you become debt free you’ll want to remain that way. No problem, your budget will help you with this.

Debt is created when you spend more money than you earn. When you budget you only ever budget for the money you are earning.

You don’t plan to spend more than you receive each month. Sticking to your budget means you’ll keep within your income boundaries.

6. Save for Expensive items

Most of our budget can end up being spent on day to day living expenses. But you’ll still want to buy big ticket items every now and then.

A new car, a new fridge, boiler/furnace or other household items. Your budget can help you do that, no problem.

Sinking funds are what you need. Set aside money in these funds to build up into a ready available pot of money for when you need that new item.

Save every month, long before you actually need them. A car is not something you can save for in a few short months, nor is a new boiler/furnace.

Save each and every month, even after you’ve bought something, because something else will need buying at some point.

7. Increases long term savings

As you become more confident in your budget’s purpose and your ability to manage it, you can start putting aside money for long term savings. Much easier once debt has been repaid as those debt repayment monies can be diverted into savings.

8. save for retirement

Not enough people save for retirement, in fact 15% of Americans have no retirement savings at all and 22% of UK adults expect they will never be able to retire.

One of the top reasons for not putting aside money for retirement is that they can’t afford it. I understand this feeling but you can’t afford NOT to save for retirement! If you aren’t, who is?

Social Security is not something you want to be your only income when you retire. Therefore you need to prioritize retirement savings sooner rather than later.

9. Set and achieve financial goals quicker

Understanding your money and it’s flow allows you to dream and to make plans for your future that involve money. Creating and writing down your financial goals is the best way to actually achieving them.

Talk them through with your spouse, write them down, work out how you are going to achieve them. Then let your budget do the rest.

money jar with emergency fund label on a wooden desk with other financial items to signify what is the purpose of a budget
Fill your emergency fund when you budget every month

10. fully fund your Emergency fund

An emergency fund is an essential part of your financial plans. It stops you from going into debt when you get hit with an unexpected bill.

If you don’t have one already then you can create your budget around the need to get at least $/£1000 socked away in an easy access account.

Longer term, you can plan on saving 3-6 months worth of expenses to really banish any money worries you may have.

11. Enables you to live below your means

Having a clear budget clarifies for you exactly how much money you have to spend. It helps you limit your spending to only what you have and nothing more.

You can not only live within your means when you have a budget but if you have savings goals to achieve you can change your spending so that you are living below your means and saving the rest.

12. Helps you cut spending

If you have worked out your spending so that you only have $300 for groceries and eating out then that is what you have to spend. Knowing your spending limit is enormously helpful in keeping your overall spending down.

You aren’t going to blow $150 on a week’s worth of groceries when you know you have $300 for the whole month. You’ll cut back on a few luxuries without even really thinking about it too much.

13. cut expenses

Monitoring your expenses will help you to see where you can make savings. Your utility bills are a great example, you can change provider or negotiate with your existing company for a better rate.

Plus you can take steps to reduce your energy usage to lower your costs. You can look at every bill going out of your account and decide whether you still want the service that bill provides. If you don’t, get rid.

14. Identify wasted money

Monitoring your budget gives you the opportunity to identify ways you are actually wasting money, and put a stop to it.

Subscriptions you no longer use but are still being paid for, too many random trips to the store for a few items and coffee to go being bought more often than you planned.

All can be seen very quickly and changes made, long before the end of the month. Wasted money doesn’t keep on being wasted.

15. Improves your financial knowledge

Creating your budget, monitoring it daily/weekly and continually refining it gives you an increased knowledge of your finances.

You develop a better understanding of how to make your money last, what is important for your money each month, how you need to spend in order to keep to your budget through to your next paycheck.

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16. improves self discipline

When the purpose of a budget is to plan, manage and improve your finances you can’t help but improve other things at the same time.

The discipline to not over-spend. The discipline to stick to your spending plans, to create goals and achieve them. These are all aspects of improving your self discipline which you can use to benefit you in other areas in the future.

17. helps you achieve lifestyle you want

If you want a certain amount of money, a certain size of house or a certain lifestyle then sticking to your budget can help you achieve them.

Set your goals for your lifestyle and create your budget around the necessary financial steps you need to take for those goals (e.g. savings). Achieve your budget every month and in time you will achieve those lifestyle and money goals you set yourself.

calculator, blank notepad and various colored coins on brown desktop
Be in control of your budget and your money

the purpose of a budget is to track your income and your spending – to make the most of your money

Your budget is your money, it’s you. No-one else has control over your money. You earn it, you spend it. When you create a budget, and stick to it month after month, then you will make the most of your money.

Get out of debt, achieve your financial goals, build your money confidence and learn how to make the most of your money – with your budget.

Start taking back control of your money by grabbing your copy of the Money Saving Starter Guide today.

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pinterest image for the purpose of budgeting
pinterest image for the purpose of budgeting

Last Updated on 19th October 2021 by Emma

About Emma

I'm here to help you become confident in making the best money decisions for you and your family. Frugal living has changed my life, let me help you change yours.

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