Budgeting is the starting point of your journey towards financial wellbeing. Despite its importance, a vast majority of people fail to budget due to different reasons. A budget is a financial plan that outlines how you are going to use your income to meet your immediate day-to-day expenses while saving for your long-term financial goals.
If you think that you don’t need a budget because your income is sufficient enough to meet your expenses, you should revisit your reasoning. You still need a budget to reach your financial objectives and goals to save the required amount of money each month even if you earn a handsome income each month.
Here are five reasons why you need a budget:
1. Stops Overspending
A budget helps you stop overspending as you assign spending limits to different categories of expenses while preparing a budget. Budgeting also involves reviewing your spending history every month, which can highlight expense categories where you breached your spending limits. For example, seemingly smaller expenses like drinking coffee could accumulate to become a sizable amount after a month, which you can curtail to save a considerable amount of money.
2. Prepares You For Emergencies
One of the many objectives of creating a budget is to save money for meeting emergency situations and funding large future purchases. If you have created an emergency fund, you would need a budget to ensure that you deposit a fixed amount of money each month into it. The benefit of an emergency fund is that you can use your own funds for emergencies without taking out expensive loans.
3. Builds Up Your Retirement Savings
A budget can help build your retirement savings as you allocate some portion of your income to your retirement fund each month. Even if you already have an employee-sponsored retirement fund, you can top it up with additional savings or opt for a private retirement fund. Saving up for retirement each month consistently is only possible if you devise a budget and stick to it.
4. Helps You Achieve Your Goals
If you want to buy a car, save for your child's higher education, buy a home, or have any other capital intensive financial goal, you need to save money consistently over a long period. Budgeting can make the task of saving for your big financial goals easier as you become disciplined with your spending and savings month after month. When you budget regularly, you can easily predict the amount of money you want to save periodically to achieve your financial goal.
5. Helps You in Decision-Making
A budget is a written plan for spending your income, which can aid you in making financial decisions. With a budget in your hand, you would analyze the impact of each transaction on your finances. For example, if you want to buy a car, you can contemplate whether the costs associated with the purchase are within your budget. You would correctly know your financial condition before making such a large purchase, allowing you to make informed decisions.
Conclusion
If you are struggling with managing your finances and are clueless of where your income goes, you need to create a budget. It would help streamline your finances, allowing you to determine the flow of your money. You can then fine-tune your expenses to achieve your financial goals.
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