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This cannot be stressed enough: Budgeting is the most effective tool to manage your funds. Period.
When you budget, you are working on keeping your finances on track. You can determine if you have enough to cover your needs (expenses) and if you are spending more than what you make (earnings). In other words, you’re handling your income responsibly.
You can put an end to overspending and paying interest on loans and credit cards by making responsible financial arrangements of your paycheck.
In order to achieve this, you need to set your priorities straight based on your financial limitations, come to terms with your spending habits, track where every dollar goes, and hold yourself accountable for reckless spending.
Don’t worry: This doesn’t have to equate to a life of restrictions and sacrifices (no fun), but it does mean you will have to plan out your spending more responsibly.
If you follow your budget plan, you will eventually be able to enjoy things you never thought you could afford, like a holiday abroad, a new car, investing in real estate, making home renovations, a luxurious retirement, starting your own business, investing in stock, and the list goes on.
Starting can be a hassle, it’s true. Just thinking about putting together all your bank statements and receipts and registering them in an excel sheet (or notebook, or whatever you choose) can be overwhelming.
If you share this task with someone else, like your spouse, you can both work toward the common final goal, prevent economic woes that may damage your relationship, and be the best role models to your children.
If you need help: download specialized software, speak to an expert, or ask your bank for some direction. Most bank statements have tips and information on budgeting on the back.
Don’t be discouraged if the task seems daunting, half of the battle is won when you gather the strength to come face to face with the problem and act on its solution. With time and discipline, it will become an easier task that you will actually enjoy, and you’ll be thankful for the invaluable peace of mind you’ll gain.
Enough talk. What are the benefits of budgeting?
1. Focused Priorities
When you create a budget, you set aside money for what you consider important. This includes bills, savings, and other needs. If you start tracking your purchases, you may notice you are spending more than necessary on certain areas.
By prioritizing your spending (determine cost/benefit), you will be able to have enough cash for the things that really matter to you.
Think about it. Money should not control your life. Choose to break the cycle and eliminate every purchase that does not contribute to your financial goals.
Instead of getting that new console or flat screen TV, think of how that cash can be used for a better purpose, such as paying off credit card debt. Having this set criteria on how to distribute your spending will help you live within your means.
If you follow this plan throughout the year, you will find patterns on your finances that will let you plan ahead for the months where the money is tight. Look at budgeting as the map that will lead you towards the biggest reward: financial freedom.
2. Your Retirement Plan
Who wants to be 80 and working as a cashier at their local supermarket to make ends meet? No one! Anyone who gets to that age deserves to enjoy a quality retirement. But it doesn’t come for free. Planning your expenses now will help you prepare yourself for the later future.
Set aside a portion of your paycheck every month and put it in a retirement fund, like IRA or 401(k). You might not consider it important at the moment, but when the time comes, you will be thankful you chose to plan ahead and protect your elder self.
3. No Surprise Emergencies
An unplanned event such as being laid off or hospitalized, a divorce, a death in the family, etc., can shake your stability. An emergency fund allows peace of mind and protects you from debt or even bankruptcy when taking care of these extreme and sudden situations.
Set realistic goals and start small, building it slowly and gradually into your budget. The fund should equal at least three to six months’ worth of your living expenses. But don’t try to gather the entire amount right away, it can be frustrating and put you at risk of using a credit card or a loan to cover your current bills and needs.
4. Goodbye Money-related Stress
Where did all my money go? And how did I let it control my life? These are common questions for those who have no control over their spending and end up in ruin.
The good news is you can take back control and prevent bankruptcy by conscientiously managing your earnings. Budgeting is not about taking the joy out of life.
As long as you are paying your debts and putting aside money for saving, you can use some of your cash on leisure activities or treat yourself and your loved ones to things you truly enjoy.
Don’t forget that having debt is not necessarily something negative. With the understanding that it is ok if you can afford it and that you took the loan after careful planning, debt can actually help you build a good credit history.
Think of all the time budgeting will save when doing your taxes or taking a loan from a creditor.
Being realistic about your limitations will save you from the constant burden caused by an overwhelming debt load. Stick to your budget plan and sacrifice unnecessary expenses to obtain the ultimate prize: no debt. Now that is peace of mind!
5. Build Your Savings
As previously stated, budgeting will let you create a safety net in case of an emergency and for retirement. But if you want to start building wealth as well, you need an extra savings fund.
Saving will let you become financially secure, especially since average life expectancy has increased and more money is needed to get by.
Maybe you want to provide your children with a private college education, or you want them to inherit a hefty sum that will protect them when you’re gone. Whatever the reason, saving is a must to achieve financial freedom.
The Bottom Line
Budgeting will let you analyze how, when and on what you are spending your earnings on. How is your salary working for you, and how far are you toward reaching your financial goals?
By learning more about yourself and carefully planning your expenditures, you may take advantage of buying and investing opportunities, plan how to lower your debt and save for the future.
The benefits are substantial and far outweigh the hassle of taking the time to look into your finances every month (or biweekly, or quarterly, depending on how you get paid).
Budgeting will put an end to living paycheck to paycheck. Follow your plan consciously and with discipline, and lead a happier life, free of financial worries.