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Budgeting vs Financial Planning: What’s the Difference?

In similar lanes but with key differences, learn how to budget your money with this helpful guide. As always, this is not financial advice...

4 August 2022

Banc Content

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In similar lanes but with key differences, learn how to budget your money with this helpful guide.

As always, this is not financial advice, however, if you’ve never done either, then budgeting and financial planning might seem pretty much identical. And sure, they have their similarities. But they’re more like two sides of the same coin; both help to improve your individual finances, just in their own way.

So, what exactly are the differences, and how can both budgeting and financial planning help you to maintain a healthy financial position both now and into the future. We’ll go through how they differ, along with their benefits, in the article below. Let’s get started…

What does budgeting mean?

Budgeting is all about the short term. By tracking your income and expenses on a weekly or monthly basis, it looks at your money in the here and now. Essentially, budgeting covers how much you make, measures how much you spend, and lets you spend less than what you bring in.

Fixed expenses like your mortgage, rent, and childcare will take priority. You’ll then work out what you can spend on food, transportation, and clothing. Anything that’s left over can then be used on things like eating out, holidays, or long-term investments, if that’s what you want to do.

When you budget, you make active decisions as to where your money goes. Tracking spending in this way makes balancing your outgoings and paying bills on time far easier, and in the event of emergencies, you’ll have extra cash to deal with the unexpected too.

man looking over paperwork

What is financial planning?

Whereas budgeting offers a snapshot, financial planning looks at the larger fiscal landscape, so you can reach more long-term goals. There’s a lot more vision involved in financial planning, allowing you to plot a course on the way towards milestones like owning a home, starting a family, furthering your education, and retiring.

A financial plan lets you track your progress towards these kinds of goals quarterly or semi-annually. Generally, the process involves something akin to the following:

  • Listing the things you or your family want to achieve
  • Looking at your current financial position including analyzing assets, liabilities, income, and expenditure
  • Analyzing how far from achieving these goals you are
  • Creating a plan of action to help you reach your goals
  • Putting this plan into practice (aka the hard part)
  • Making the necessary adjustments if things change

You may employ a financial planner or advisor to be on hand to help you create a tailored financial plan and offer objective advice along the way.

How do budgeting and financial planning differ?

Starting to get a sense of their differences? Let’s take a closer look at their distinctions in more detail below.

Different aims

Budgeting is more concerned with cleaning up certain spending habits. Maybe you’ve been eating at too many fancy restaurants lately? Or you’ve been treating yourself to fancy new clothes more than you’d like. Putting more into your savings account every month might be a wiser decision instead.

Financial planning, on the other hand, is more concerned with reaching bigger financial goals, such as paying off debt or saving for your wedding day.

Slow and steady vs. quick and instant

When your spending habits are placed under the budgeting microscope, you’ll be tracking your progress far more often than you would with financial planning. Whereas the latter is more like a long-distance race, budgeting is a 100m sprint by comparison; you’re moving quickly to tick off short-term goals as often as you can.

Financial planning looks at larger goals, and for that reason, progress is slower and more measured. You’ll also be tracking your progress a lot less too, usually at quarterly or annual intervals.

piggybank to represent savings

Drilling into the details

Analyzing your spending habits means getting down to the brass tacks of where your money goes. When you’re committed to counting the pennies, you’ll be setting up spending limits that require a more incremental view of your outgoings, even if it’s just a few dollars a month you end up saving.

On the other hand, financial planning isn’t as concerned with such a granular view of things. Getting too hung up on the exact amounts you’re spending can actually end up getting in the way of your long-term goals.

What are the benefits of budgeting and financial planning?

The benefits of budgeting

  • More control over your cash – Rather than spending freely and hoping you have enough left in your account when it’s time to pay for bills, rent, or the mortgage, budgeting lets you know you have enough to pay for your necessities.
  • Helps you save for unexpected costs – A sick family member. Repairs to your car. Losing your job. When you budget, you can always fall back on your reserves when something you weren’t prepared for rears its head.
  • Highlights immediate money issues – By shining a light on your spending, you can identify any problems that need rectifying before they spiral out of control.
  • Makes talking about money issues easier – Nobody likes to have ‘the money talk’. But it definitely pays to mention your budgeting plans to your loved ones. Not only will they be on the same page regarding your spending limits, but they’ll be part of the solution too, all of which adds up to a more prudent approach.

family having discussion on sofa

The benefits of financial planning

  • Creates peace of mind – Money worries are a big issue. They’re also an avoidable one. With the right planning and financial tools on your side, it’s possible to create a greater sense of security and peace of mind, even in the event of emergencies.
  • Lets you live the life you want – With a plan that you can actually follow, financial planning lets you make the necessary adjustments and alterations that give you power over your money. With an enhanced view of your finances, you’ll always be aware of the amount you need to live life your way.
  • Greater goal setting – When you have goals to work towards, it gives your life a greater sense of direction and purpose. And it’s been said that people who actively work towards their goals are almost 10 times more likely to succeed. That’s the kind of motivation we like to hear about!

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