6 Reasons Why You Need a Budget
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Many a time, people complain about how it is impossible for them to give a proper account of their personal finance and how this translates to a poor financial state. Spending money is easy and given the current hike in living expenses, it is difficult for most persons to keep track of their personal finance as well as achieve their set financial goals.
A budget is a financial tool that outlines the income of an individual and the expected expenditure for a given time frame. The budgeting process allows a person to achieve financial freedom by helping him avoid debt, build wealth, make savings, and secure his financial future. A budget makes a person have a better understanding of their financial situation.
So, are you worried about your spending habits (and wish to stop spending carelessly), how to pay bills, debt payments, and the embarrassing state of your savings, or your earnings are not enough to provide for your needs hence, a need to prioritize your spending on a scale of preference?
You may be needing a budget and all the benefits that accrue from using it. In this article, we will learn about how budgeting helps in making informed financial decisions, the benefits of budgeting, and why you should have a budget.
6 Reasons Why You Need a Budget
Seeing that a budget is a spending plan, several benefits come from making a budget. These include but are not limited to:
1. It Helps You Create and Keep Your Eye on the Bigger Picture
A budget compels you to draft a long-term financial goal, keep track of your progress and constantly remind you why you cannot spend money on the newly released Nike Air.
You cannot spend your entire life, a spendthrift. If your long-term goal is to save enough money in your bank account to buy a house, budgeting puts this goal in a clearer perspective such that you can walk past that game shop sampling the new PS5 without having to spend money on it because you understand the importance of saving up money and how much progress you have made toward achieving the goal.
2. It Helps You Avoid Spending Money You Haven’t Earned Yet
Credit cards are a lifesaver but they can also drown a person in debt. Learning to live within one’s means contrary to popular belief, is not a sign of poverty but that of self-restraint. Going on a shopping spree or taking trips on a yacht are fun things thing to do until you realize that you are spending money you don’t have and owing money you cannot afford to pay.
Budgeting helps you create a solid plan that will put into cognizance how much you earn, how much you can comfortably spend, and how much to remit to your savings account after settling your monthly bills. This way, you can track your spending and still save money by opening an investment account for that stock you want to purchase.
3. It Helps Make Retirement Something to Look Forward To
How good is a plan if it doesn’t make provisions for a comfortable future? While it is a commendable thing to make good financial decisions and not incur debt along the way, wouldn’t it be nice to retire to a nice home on the beach, golfing with your pals, and take hunting trips with your grandkids? Or would you prefer working an 8-9 in a grocery store and binging on painkillers because your knee hurts badly from standing all day? I wouldn’t too!
A budget can help you save into a retirement account by contributing a determined portion of your earnings into your retirement funds. It is a little sacrifice that portends great benefits to your financial goals in the future.
4. It Makes you Prepared in the Event of Unforeseen Circumstances
The concept of emergency funds makes budgeting an indispensable tool in our financial journey. A distasteful aspect of life is the fact nothing is assured in the future. Emergencies are a constant aspect of living and if one isn’t prepared in the face of debilitating ones, he or she could spiral into serious debt.
An emergency fund is a money set aside for covering expenses for at least three months in the event of an emergency that renders the person incapable of generating extra money. These emergencies include being laid off from work, sickness, natural disasters, wars, etc.
Saving up at least 3 months’ worth of living expenses from your paycheck into the emergency fund might seem a huge ask but it is usually advisable that you do not dump all of your earnings into saving for emergencies. A little money, say $30 -$40 contributed monthly into the emergency funds can serve as a huge financial cushion in the event of these emergencies.
5. It Exposes your Bad Spending Habits
The process of building a budget tends to shed light on our reckless expenditures. Not keeping a proper account of one’s expenses has a way of making them oblivious of their bad spending habits. Do you need to buy every new release of your favorite clothing line? Do you need to have all the different colors of that headscarf? Do you have to get a premium cable subscription that you barely view up to 10 channels out of 300?
A budget helps you identify these frivolous purchases and makes you stop spending on things that are not a need or spend less than usual on things that have limited need. People who budget tend to save more money than those who do not appreciate budgeting in important areas of spending.
6. It Diminishes Stress Over One’s Finances
This is perhaps one of the most important benefits of a budget. Worrying over a situation has never been a true solution to any problem and this is especially true in the world of finance.
Worrying about how to pay bills and repay debts will to a large extent be a thing of the past when you make an all-encompassing budget as you know at every point in time, where your money is going.
Why is Budgeting Important?
From the general idea behind a budget, it is deducible that it can help a person achieve financial freedom by allowing for judicious utilization of a paycheck on expenditures. This will in the long run help this individual save up extra money, stack up an emergency fund, buy a house or make other major expenditures, and know his net worth at every point in time.
Depending on the budget type, different expenses can be catered for. A monthly budget caters for bills on a monthly basis while daily and annual budgets do so on a daily and yearly basis respectively. Other budget categories include the food, clothing, and recreation budgets, budgeting important and specific living expenses.
In summary, a budget helps you to know how to spend your money and save money, hence, a budget puts you in a position of control over your finances such that you know, at every point, exactly how much money you have.
What are the Reasons to have a Budget?
There is a myriad of reasons why people should have a budget guiding their expenses but put simply, a budget is an integral aspect of financial management and a financial habit everyone should adopt.
A budget can help you spend less, pay debtors, stack up an emergency fund, identify your sources of wasteful spending, stop you from accruing debt, make healthier monetary decisions, provide a clearer image of your financial state, reduces stress, and give you a chance at a peaceful retirement.
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Conclusion: Reasons why you need a budget
If you have a set of goals you wish to achieve in your personal finance, having a budget will discipline you to not live outside your means, help you analyze your spending habits, save for retirement and into your emergency savings account, debt repayment, put to good use any money left, and lead you on the right path to the achievement of those financial goals.
So, who should have a budget? Everyone! When should you start budgeting? Now! And what should you budget? Everything! It is as straightforward as that. Budget today!
Reasons why you need a budget FAQ
Should you put your savings in your budget?
If you think of a budget as a tool to help you manage your cash flows, then the answer to this question becomes an obvious yes!
Saving money is one of the major things that make budgeting important. Most people have a problem with deciding how much of their earnings should go into their savings. This, however, is dependent on the individual’s financial goals, age, and disposable income.
The primary determinant of how much to save is a person’s goal. If you wish to save enough money to buy a home, then priority is given to saving over other aspects of the budget. An individual’s age will also determine the components of his budget which will be reflected in the money budgeted for saving after other expenses. For instance, an older person should understandably budget more on retirement and emergency funds which may leave little funds for saving.
A person’s disposable income is a major determinant of what proportion is put away for saving. This money also determines how much the person should be spending on wants and still be able to meet their set goals. The higher the amount of money left after budgeting, the higher the amount available for saving.
What is Income?
Though having varying contextual meanings, the term refers to any store of value that an individual receives over a specified time for their work or services rendered. On an individual basis, there are two types of earnings, disposable income, and discretionary income.
The former refers to the money remaining from the gross income after taxation while discretionary income is the amount of money remaining, if any, after taxation and expenditure on necessities of life such as food, shelter, and clothing.
An individual’s income is a huge determinant of the nature of things in his budget and the amount of money budgeted for them.
