Learning how to make a budget can be one of the most critical financial decisions anyone ever makes. It can be the one thing that saves many people from financial ruin only because it allows them to take back control of their money. The goal of any budget is to ensure that you and your family have the necessary money to cover life’s necessities. Once those are covered, any leftover money can be used for any number of things, including saving your emergency fund, paying off debt, or saving for a vacation. The other thing to remember is that a monthly budget is like a living thing, with changing income, expenses and other things affecting it each month.
A budget is nothing more than some simple accounting that even kids can do. The ultimate goal of any budget is to have more money coming in then is getting paid out in bills each month. This is just common sense, but unfortunately, many people have a real hard time making this happen because they have no idea where their money is going. HOW can you do this and WHY is it important?
Reasons You Must Have A Budget
Many people do not bother to make a budget for various reasons. Some people make enough money that they always have money in their account for bills, so they don’t believe they need to make a budget. Others don’t out of pure laziness. Some, however, don’t build a budget because they don’t know how. Either way, everyone should have a budget made for these reasons:
Budgeting Stops You From Overspending
Many people don’t know when they should stop spending. As long as they see there is still money in their account, they are ready to spend it. Building a budget will allow you to set an amount you will spend on certain things. This will reduce your risk of making debt by knowing exactly how much you have to spend each month so that you do not need to use your credit card for any purchases due to you running out of funds.
You Have More Control Over Your Spending
People who do not live on the budget are likely to spend 10 times much more money than they can afford each year. This can lead to many problems; maxed out credit cards, including late fees or late credit cards, a home purchase you couldn’t afford or an expensive car with months and months of high car payments, which causes serious long-term debt problems. Not only does budgeting help you not overspend, but it allows you to allocate funds to another expense (sinking fund) or savings account if you see fit. If you have a vacation coming up, you can easily see by looking at your budget where you can take funds from so that you can put that towards saving for a holiday without interfering with your current goal.
It Can Help You Achieve Your Goals Faster
Having and sticking with your budget allows you to be able to speed up paying off debt, filling up your Emergency Fund, or ramping up your investments. If you are paying off debt and you decide that you want to pay it off faster, you can look at your budget and see what other expenses you can move funds from to do so. You may decide you can take a few hundred out of another sub account (sinking fund) and move it into your payment expenses to achieve that goal, and it’s easily doable when you have a budget.
Not having to worry about how you are going to pay your bills or whether you will have enough money to save this month is one of the most important reasons to have a budget. Without a piece of mind, it is difficult to make wise financial decisions. Having these worries out of the way will allow you to pay off debt faster, invest more of your income and be able to concentrate on building your wealth, or save for that vacation you’ve been wanting to take. If you already have your plan for how you will use your income each month planned out, you will never have to worry about having enough to pay the bills, since you automatically allocate funds towards those expenses. So, how can you build this budget? Check back in on my next blog post and I’ll share how easy it is to plan a budget for you or your family that will take the stress out of money and set you up for financial success.