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Why budgeting is so important

What is budgeting?

Budgeting basically means looking at your income and expenses and deciding how much money you are going to spend, what you will spend it on, and how much you will actually save. Creating a budget is viewed to be a painful exercise by most people, which is why they never get around to it. And even when people have a budget, they will probably find it hard to stick to it. However, budgeting is an important step in creating financial security. Here are 7 great reasons why you should have a budget: 1. Stop living from pay to pay 2. Control your expenditure and impulsive spending decisions 3. Set and prioritise financial goals 4. Start a Savings plan 5. Build an Emergency Fund 6. Get out of debt faster, and then stay out of debt 7. Reduce your financial stress

Why is budgeting so important?

Your income is like the fuel that keeps your life running smoothly: it pays the bills, the mortgage, your lifestyle… and it will allow you to build wealth for retirement if you apply it wisely. Yet surprisingly, many people do not exactly know how much they earn. Even more worrying is that even less people know exactly what they spend. The reality is that unless you have a plan and/or budget, you will more than likely spend everything you earn or more, and never make any real financial progress. So, unless you can take control of your cash flow and establish a savings pattern, you will find it very challenging to achieve financial freedom in a reasonable timeframe. A budget should allow you to identify an amount that you can realistically save, although you may need to make some compromises compared to your current lifestyle and spending pattern. Remember though, it is all about finding a balance between living comfortably now and later, and budgeting doesn’t mean that you should sacrifice your entire standard of living. Smart budgeting means that you make active decisions about where you spend your money, by focusing on the areas that are most important to you: Annual overseas holidays might be non-negotiable for you, but buying an expensive car might be less important and so you may trade off one for the other;

Private school fees for your children may be your first priority, but this may mean you cannot afford to live in your suburb of choice.

Everyone is different and there is no right or wrong. However, it is important to become aware of where you spend money and where you might be able to achieve some savings. There are different types of expenses you will need to include in your budget: Essential expenses refer to costs you cannot avoid and will include items such as groceries, insurances, rates, repairs, etc. Whilst you cannot avoid these expenses, you may still be able to control how much you spend on them. For example, you can shop around to find the best insurance deal. Where you shop for groceries may also make a difference in terms of how much you spend.

Discretionary expenses are not essential, but you may choose to spend money on certain items or services. This may include how much you spend on gifts, holidays, personal grooming and fitness, cars, etc. These items or services will determine the quality of your life, and so you will need to make active decisions as to what you can cut back on. Typically, as your income increases, your spending in this area will also increase.

Budgeting will enable you to create surplus cash flow, which can then be used for wealth creation purposes. If you need some assistance in managing your cash flow and establishing a budget, please contact me on 08 9381 2704 or

Disclosures and disclaimers

Yves Schoof and Affluence Private Wealth Pty Ltd are Authorised Representatives of Synchron | AFS Licence No. 243313. This advice may not be suitable to you because it contains general advice that has not been tailored to your personal circumstances. Please seek personal financial and tax and/or legal advice prior to acting on this information. Before acquiring a financial product a person should obtain a Product Disclosure Statement (PDS) relating to that product and consider the contents of the PDS before making a decision about whether to acquire the product. The material contained in this document is based on information received in good faith from sources within the market, and on our understanding of legislation and Government press releases at the date of publication, which are believed to be reliable and accurate. Opinions constitute our judgement at the time of issue and are subject to change. Neither, the Licensee, nor its employees or directors give any warranty of accuracy, nor accept any responsibility for errors or omissions in this document.

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