Monday, September 20, 2010

7 Reasons Why You Need A Budget

For most people, “budget” is dirty word.  You cringe, roll your eyes, or just get irritated when you hear the word. Most people think budgets place restrictions on their lifestyle or they are too much of a hassle to make. While you may hate budgets, you NEED one to have financial success. A business cannot be profitable and successful if they do not have a budget. The same applies to you. If you want financial freedom, you need a solid plan. To remove your negative perception about budgets, I am going to refer to budgets as “spending plans.” A budget is nothing but a plan of how to spend your money wisely. A spending plan helps you to do these things.

1.      Know where your money is going. Have you ever gotten paid and wondered where did you money go? After paying bills, going out on the weekends, getting your hair done, going grocery shopping, and buying a gas, you felt like you have no money left.  A spending plan allows you to track where your money is going. It also shows your spending habits and how much money you actually have.

2.      Control your finances. A spending plan allows you to control your money instead of letting your money control you.  You decide how to spend your money by allocating a portion of your income to different expenses.

3.      Focus on your financial goals.  What are your financial goals?  Are you saving for one of your “firsts”- a car, house, or wedding? Or are you saving a vacation?  A spending plan allows you to focus on your financial goals by cutting out any unnecessary spending. You can also put money towards your goals.  It will help you to fight the temptation to run to the mall to take advantage of a sale or go happy hour every day.

4.      Get out of debt and avoid debt. A spending plan helps you to live within in your means. It shows you how much money you can put towards paying of your debt (hopefully more than the minimum payment). If you want to put more money towards paying off debt, a spending plan can show where you can cut back.  Spending plans also help you to stay out of debt by helping you to not spending more money than you earn. By not overspending, you are not using high interest credit cards to pay bills. You save money in paying interest and protect your credit.

5.      Save for the future. Life happens. You could lose your job, get sick, your car can break down, lose a love one, etc. Having money to cover any emergencies can help reduce stress in trying situations. Financial planners usually recommended that you have at least 6 months of your income in savings. A spending plan helps you to set aside money into an emergency fund. As previously mentioned, it can also help you save towards your financial goals like buying a car or a house.

6.      Extra money. Since it helps you to track your spending habits, a spending plan shows you where you need to cut back on your expenses. You will also have extra money from not paying a lot of interest on credit cards and other debt. This will give you extra money that you can put towards savings or your financial goals.  Cutting out unnecessary expenses also allows you to take advantage of other opportunities. You can save for retirement, start investing, or save to go back to school with the extra money.

7.      Freedom.  Managing your money will not be a burden with a spending plan. You will not have to worry about whether you have enough money to pay your bills.  With your spending plan, you know exactly how much money you have. Your life will not be constrained by your money. You can splurge on that new TV or take that exotic vacation because your expenses are covered. A spending plan puts you in control and allows you to be free.

Having a spending plan can only help you. It takes discipline, but you won’t be up to 3 AM worrying how you’ll make it until your next paycheck.

1 comment:

  1. Great article! I appreciate the tips. I will pass this along.