Some people don’t take the time to create a budget, believing they are earning enough to cover their monthly expenses. Others are even reluctant to budget as they recognize it as a financial method that involves restrictions, headaches, and hassle. But if you keep on doing such things, it is improbable that you will achieve financial fitness.
If you want financial freedom, you have to know where every penny you earn goes. Budgeting gives you a detailed understanding of your financial limitations or what you can afford. And the greatest perk is that you don’t have to live paycheck by paycheck anymore. Are you uncertain whether budgeting is that beneficial? Check out the benefits you can expect from it.
1. Helps you prioritize
Keep in mind that budgets do not exist to limit you from spending. It is a practice to help you align your expenses with your priorities. For instance, if going to a café serving European breakfast every Saturday morning is a priority, you need to include it in the budget. Or, if a Friday date night with friends is a priority, then it must be in the budget. Budgeting then helps you allocate your money based on your prioritization. The basic rule is, if you want to put more money on one category, you should spend less on another.
2. Puts you in control
If you are not controlling your money, chances are it’s controlling you. Have you ever experienced looking at your credit card or bank statement at the month, and you have no idea where you spent all that money? If yes, you should start budgeting now. Instead of thinking about where did your money go, isn’t it better to control where will it go? Active budgeters can ensure that they have enough funds for their priorities and not worry about having insufficient money for anything.
3. Helps you save more
If you are looking to save more money, create a personal budget now. Many investment advisors agree on the correlation between having a smart budget plan and saving money. Let’s say you attempt to save more without tracking your money and expenses. In the end, you’ll likely take money out of your savings to cover expenses you bypassed before. Having a well-planned budget allows you to monitor your expenses and assign your money for certain spending. It also provides you with the ability to save money that you can put into good use, such as advance payments for debt, donations to charities, or insurance.
4. Gets you out of debts
According to research, while credit card debts have dropped by more than 6%, other debts such as student, auto, and home loans have increased last year. It is also found out that instead of saving more, households have added more debts. People in this worsening financial situation are typically reluctant to create and follow a personal budget every month. Budgeting includes understanding your length of loans and interest rates, allowing you to control your debts.
5. Builds better money habits
Did you know that 65% of Americans have no idea how much they spent in the previous month? Without a well-planned budget, you surely tend to overspend. And as more and more of your income goes to debt payments, your spending power will also be limited. What will you feel about having the majority of your paycheck applied to your credit card payments? With budgeting, you can identify when to stop spending. You even have several options, such as budgeting apps or envelope systems, to make the process easier.
6. Creates cushion for unexpected expenses
Another reason why budgeting is critical is that it helps you prepare for emergencies. If you got laid off or injured, your need a new roof, or your car broke down. You need enough money to cover all of it. The last thing you want to do is to charge these expenses on your credit card. In fact, around 30% of Americans don’t even have $500 of cash to pay for bills, and about 25% of them have no emergency savings at all.
Keeping your finances on track comes with plenty of benefits. Budgeting does not have to be a stressful and time-consuming process. You need to find the best method and habits that work for you, from using budget templates or spreadsheets to setting up automatic payments on your savings and checking accounts. Get starting with budgeting today and have the power to spend your money the right way!