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Setting a budget: The importance of it

Updated: Dec 7, 2023

What is a budget?

A budget is a way of managing finances. It is a money plan used to balance income to the house/business (money coming in) and expenditure (money spent). A budget should be reviewed regularly on a weekly, monthly or yearly basis.

Why is setting a budget so important?

  • Setting a budget gives a person or a business a better understanding of their finances.

  • Setting a budget ensures that the money that has come in, say through wages in a household, will last until payday. This helps the person avoid debt and having to borrow money from friends or family.

  • Setting a budget allows the person to live within their means thereby being able to balance living costs against their income.

  • Setting a budget creates money awareness with the realisation that bills such as electricity and heating must be paid and taken into consideration with setting a budget.

  • Setting a budget provides a person with the opportunity to save money/invest money which can be used for luxury items such as a car, holidays, new clothes.

  • Setting a budget provides a person with the opportunity to save money in case of emergencies in the future, e.g. such as heating breaking down in winter, or the car needing fixed.

  • Setting a budget prevents a person from impulse buying, items such as clothes or other luxury items, as they will know how much money remains to be spent on their budget and if they can afford to buy these items.

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