Advantages And Disadvantages Of Budgeting (A Quick Guide)
Have you ever thought of the advantages and disadvantages of budgeting?
Budgeting is something you’re either on board with or dreading. We’ve been told that tightening the purse strings from time to time can be good, but what about the flipside?
Are there actually disadvantages to budgeting?
That’s what we’re going to discuss in today’s post. We’ll look at both the advantages and disadvantages of budgeting.
Here’s a little summary:
- Gets Your Expenses Under Control
- Helps You Identify Wasteful Expenditures
- Increases Your Savings
- Helps You Understand Your Spending Habits
- Reduces Financial Stress
- Helps You Get Yourself Out Of Debt (Faster)
- Shifts Your Mindset
- Trouble Finding The Right Budgeting Method
- Stress When Your Budget Gets Tight
- A guessing Game
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- What Is The Purpose Of A Budget?(And How Can It Help You?)
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What Is A Budget?
Before we get into the nitty-gritty details of the advantages and disadvantages of budgeting, I’m just going to go over the basics.
Let’s start with defining a budget.
A budget is a financial plan for a specific period of time. Why would anyone do that, you ask?
This is akin to a financial diet. You diet to improve your health, track and manage your weight (loss/gain) progress, right?
Going on a budget helps you plan future expenses, keep track of, manage and improve your financial health.
Think of it as a forecast of your income and future expenditures or until the date of the financial goal you have to reach.
Advantages Of A Budget
Like anything else, there are merits and demerits of budgetary control.
Let’s kick off this post on a positive note and take a look at all of the advantages of a budget.
1.Gets Your Expenses Under Control
Have you ever opened your bank account and looked at your bank balance incredulously, wondering where all your money went?
Wonder no more with a budget because one advantage of budgeting is getting your expenses under control.
If you’re someone with a spending problem, creating a budget can do a few things for you. It can:
- Help you figure out how much you’re spending
- What you’re spending your money on
2.Helps You Understand Your Spending Habits
When you really look at your expenses, more often than not, you’ll see a pattern. You can use this pattern to help you understand your spending habits.
If you don’t know where your money is going (surely it isn’t disappearing into some abyss somewhere) setting up a budget can be a real eye-opener.
A cup of coffee each month may not add up to a lot but a cup of coffee every day for a month? That costs a heck of a lot more than you’d think.
It may not sound like a big advantage, but having that sense of awareness and understanding to your spending habits is incredibly beneficial to improving your financial health.
After all, you can’t fix a problem you don’t see.
Which brings us to our next advantage, identifying wasteful expenditures.
3.Helps You Identify Wasteful Expenditures
A budget demands that you go through your finances with a fine-tooth comb.
By doing so, you’re about to identify money wasted.
Being aware of what your frivolous expenditures are can help you save a ton of money and help you plug any financial leaks.
Maybe you never noticed a monthly subscription being deducted or you never realized how much you’re actually spending on your take-out.
An advantage to budgeting is that you’re made aware of your spending habits and therefore can identify and plug any financial leaks.
4.Increases Your Savings
You know that feeling you get when you dig through the pocket of an old pair of pants and you find a $20 bill?
That’s a good feeling!
When you create and stick to a budget, you’ll be surprised how much money you find within your means and what you can save.
As you decrease your expenses, you should end up with more money at the end of the money.
And what should you do with that leftover money? Stash that cash and put it towards your savings.
By doing this consistently, you can watch your savings grow.
5.Helps You Get Yourself Out Of Debt (Faster)
Another advantage to budgeting is that it can help you reach your financial goals.
Whether this means building a pension fund, savings account, or tackling debt, budgeting can help you get there.
If you’re swimming in debt and you’re not entirely sure how to get out of it, budgeting is the way to go.
When you’re aware of your expenses, you can prioritize where your money goes and crawl out of that pit and be debt-free.
6.Reduces Financial Stress
When we look at the advantages and limitations of budgetary control, I think it’s important to consider how a budget can take away a significant amount of pressure and stress.
Your goals and objectives are prioritized and if you stick to your budget, you’re not going to worry because you’ve got a concrete plan laid out.
If you plan each month, you’ll find yourself at ease knowing how much you have and what that money will go to.
7.Shifts Your Mindset
Setting up a budget and sticking to it can be difficult but when has anything worthwhile come easy, right?
Maybe it isn’t considered an advantage but more of a side effect of budgeting.
When you stick to a budget, you’re improving your self-discipline. Especially if you’re someone that doesn’t have frugal habits, a budget can help you shift your mindset.
Before you spend money on something, you’ll think twice about it. Your choices and decisions become more deliberate and less impulsive.
Disadvantages Of A Budget
Alright! We have reached the second half of the discussion on the advantages and disadvantages of budgetary control.
Let’s see what the downsides are of budgeting:
1.Finding The Right Budgeting Method
“Wait, what do you mean there’s more than one method of budgeting?”
If you didn’t know this, it’s completely a-okay because we’ll cover a few types of budgets a little later on in this post.
Finding the right budgeting method gets you a step closer to your goal but that’s not all it takes.
The right type of budgeting plan for you can be determined by various factors:
- expenses, and
- spending habits.
There are actually few types of budgets, so it might take some time and a bit of trial and error here and there before you find one that works for you.
2.Stress When Your Budget Gets Tight
When you make lifestyle changes, there will be bumps in the road and a lot of adjusting.
Adapting to a budget can mean a change in lifestyle and sometimes that’s difficult to stick to.
Living life guided by a budget means adhering to guidelines and knowing that every cent has its place.
Sometimes, things don’t go as planned and you’ll find that you need to fork out money on an expenditure you weren’t expecting.
If you run out of allocated money in any category, it can be very stressful because you are so aware of your progress and how much it can impact your financial health.
It’s a bit of a catch 22
Having awareness can bring great ease but it can also cause stress if you feel like you’re not on track.
Let’s talk about the elephant in the room when it comes to budgetary control advantages and disadvantages.
The rigidity of a budget can be a double edged sword.
Short-term? It gets the job done.
Long-term? It can actually have a less desired effect, which is why it’s listed as a disadvantage.
Budgets when adhered to can achieve great things but they aren’t very flexible.
The rigidity of living life guided by a budget can mean cutting expenses and working within financial constraints.
This means little to zero wiggle room and can often leave some feeling lackluster or frustrated.
4.A Guessing Game
Planning, budgeting, or forecasting is not an exact science.
Maybe you’re a freelancer and your income fluctuates depending on the month and the number of projects you have.
Or let’s say your income is stable but your expenses vary from month to month.
Whichever way you look at it, budgeting uses approximations and judgment which won’t be accurate to the very cent.
So it may take out some of the guesswork but you’re still playing a guessing game when it comes to budgeting, especially when you can’t foresee some future financial costs.
Types Of Budgets
Did you know that there was more than one type of budgeting style?
There are actually a lot more than you can imagine but for the purpose of today’s post, “advantages and disadvantages of budgeting,” I’ll only get into a few of the more common ones:
- Zero Based Budgeting
- Rolling Budget
- Activity-based Budgeting
Zero Based Budgeting
Zero based budgeting is a type of budgeting method that requires all expenses to be justified and approved for each new time-frame or period.
This is a great budgeting style if you’re someone that spends on a whim.
Taking up zero based budgeting will only reinforce an advantage we listed: a shift in mindset and being more deliberate.
This post is about the advantages and disadvantages of budgeting, so it would be remiss of me not to mention zero based budgeting advantages and disadvantages:
- It reduces redundant activities and spending
- It’s efficient and accurate: you have to justify actual costs and not numerical guesses
- Zero based budgeting is a time-consuming method
- If you really want something, you can find a way to justify the cost which defeats the purpose of this budgeting style
A Rolling Budget
What exactly is a rolling budget and what are rolling budget advantages and disadvantages?
A rolling budget, continuous budget, or rolling forecast is a budget that changes throughout the year.
A rolling budget means when one month ends, you add another month at the end of the budget.
It keeps the figurative financial ball rolling and you’re essentially on a continuous budget. What could be so bad about that?
Well, let’s have a look at the advantages and disadvantages of a rolling budget:
- You’re always up to date with your budget
- A rolling budget will keep reflecting on new changes to the budget
- It’s a time-intensive exercise that requires constant revision
- It can be repetitive and mundane looking through your budget and factoring in changes
An Activity-based budgeting
What about activity-based budgeting? Are there flexible budget advantages and disadvantages?
Activity-based budgeting is focused on results.
Let’s say you’re aiming to save $10,000 in one year, you would work backwards to figure out what activities will generate this desired effect and then act on them.
- All tasks revolve around achieving a goal
- Irrelevant costs are removed (leaving you with only the necessities)
- It can be complex
- Planning can take time and research
- It focuses on short-term goals
Free Budget Tools
We all need a hand sometimes.
The whole point of budgeting is to take control of your financial health and cut costs; luckily for us, we’ve got the internet and all it’s wonders to help us through any hurdle and for free.
Here are a few FREE budgeting tools to help you get started:
Improving your financial health shouldn’t come with a cost.
The app allows you to see your total balances by bringing all your accounts and finances in one place.
It also automatically updates and categorizes your information for you, manages your money, and finds savings gaps for you.
Mint even analyzes the data and makes recommendations based on your lifestyle and goals to help you maximize your savings.
Another FREE budgeting tool you can use to help you with your budget is Every Dollar. It’s a budgeting website that allows you to achieve your financial goals by helping you create budgets.
Every Dollar is also available as a mobile app to make your budgeting plan accessible and more manageable.
If you’re more of a pen and paper kind of person, you’ll be happy to know that they offer printables too! Sign up is free and you can start right away by inputting your monthly income and expenses.
There you have it, folks. The advantages and disadvantages of budgeting, the different types of budgeting methods (and not to mention their advantages and disadvantages too), and FREE budgeting tools to get you started on your money saving journey.
I think budgeting is advantageous for many reasons and sure it may not be all fun and games but saving more money and growing my net worth is a goal I’m willing to sacrifice for and work towards –but that’s just my two cents.
What’s your take on this?
Do you think the disadvantages outweigh the advantages?
Related posts on Budgeting and Saving:
- How to Save $10,000 In One Year (Without Too Much Effort)
- 17 Healthy Money Habits of Successful People
- How to Protect and Grow $50k in 2021