The importance of making a budget is a financial lesson that cannot be overemphasized. If you and your family want financial security, following a budget can be key.
Still not convinced? Below are six good reasons why everyone should create and stick to a budget.
KEY TAKEAWAYS
- If you’re like most folks, you probably aren’t following expert financial advice by crafting and following a budget.
- A budget is simply a spending plan that takes into account both current and future income and expenses.
- Having a budget keeps your spending in check and makes sure your savings are on track for the future.
1. It Helps You Keep Your Eye on the Prize
A budget helps you figure out your long-term goals and work towards them. If you buy anything that catches you eye, it can be tricky to save up enough money to buy a car, take your dream trip, or put a down payment on a house.
Budgets also encourage you to map out your goals, save your money, keep track of your progress, and make your dreams a reality. Ok, so it may hurt when you realize that the brand new Xbox game or the gorgeous cashmere sweater in the store window doesn’t fit into your budget. But, when you remind yourself that you’re saving up for a new house, it will be much easier to turn around and walk out of the store empty-handed.
2. It Helps Ensure You Don’t Spend Money You Don’t Have
Far too many consumers spend money they don’t have—and we owe it all to credit cards. As a matter of fact, total credit card debt owed by an average U.S. household reached $18,054 in 2022, according to a study by nerdwallet.
Before the age of plastic, people tended to know if they were living within their means. At the end of the month, if they had enough money left to pay the bills and sock some away in savings, they were on track. These days, people who overuse and abuse credit cards don’t always realize they’re overspending until they’re drowning in debt.
However, if you create and stick to a budget, it can help you avoid this precarious position. You’ll know exactly how much money you earn, how much you can afford to spend each month and how much you need to save. Sure, crunching numbers and keeping track of a budget isn’t nearly as much fun as going on a shopping spree. But look at it this way, it can be just what you need to reach your financial milestones – having your dream wedding, buying a new home, saving for education, and more.
3. It Helps Lead to a Happier Retirement
Let’s say you spend your money responsibly, follow your budget to a T, and never carry credit card debt. As important as it is to spend your money wisely today, saving is also critical for your future.
A budget can help you do just that. It’s important to build investment contributions into your budget. If you set aside a portion of your earnings each month to contribute to your IRA, 401(k) or other retirement funds, you’ll eventually build a nice nest egg. Although you may have to sacrifice a little now, it will be worth it down the road.
4. It Helps You Prepare for Emergencies
Life is filled with unexpected surprises, some better than others. When you get laid off, become sick or injured, go through a divorce, or have a death in the family, it can lead to some serious financial turmoil. Of course, it seems like these emergencies always arise at the worst possible time—when you’re already strapped for cash. This is exactly why everyone needs an emergency fund.
Your budget should include an emergency fund that consists of at least three to six months worth of living expenses. This extra money will ensure that you don’t spiral into the depths of debt after a life crisis. Of course, it will take time to save up three to six months’ worth of living expenses.
Don’t try to dump the majority of your paycheck into your emergency fund right away. Build it into your budget, set realistic goals and start small. Even if you put just $10 to $30 aside each week, your emergency fund will slowly build up.
5. It Helps Shed Light on Bad Spending Habits
Building a budget forces you to take a close look at your spending habits. You may notice that you’re spending money on things you don’t need. Or, maybe you’re spending on subscriptions you don’t realize are still in place, such as additional video or music streaming services. Unsubscribing from just one or a few monthly subscriptions adds up. Budgeting allows you to rethink your spending habits, realize where your money is being spent, and re-focus your financial goals.
6. It’s Better Than Counting Sheep
Following a budget can also help you catch more shut-eye. How many nights have you tossed and turned worrying about how you were going to pay the bills? When you budget your money wisely, you may sleep better knowing you have a financial plan in place.
Of course, this is just the tip of the iceberg. There are countless other advantages of following a budget. So what are you waiting for? Time to start budgeting! We’d be happy to help you get started on creating your financial plan.
