The Top Reasons to Budget Your Money Carefully
Do you feel like you’ve lost control of your money? You just never know where your money goes each month? If you want to manage your money successfully, then you need to create a budget. Some people feel that only wealthier people need to budget and that poorer people like themselves should not budget. But they couldn’t be more wrong.
Budgeting helps save money. Your success at budgeting will depend on your budgeting style.
Below are reasons why you should start budgeting today.
Elizabeth Warren popularized the 50/20/30 budget rule in her book “All Your Worth: The Ultimate Lifetime Money Plan.” The basic rule is to divide after-tax income, spending 50% on needs and 30% on wants while allocating 20% to savings.
1) Reduce Overspending
A common problem with people who do not budget is they overspend. If you spend more than you’re earning in revenue each month, then it means you’re accumulating debt. As a result, more of your salary or wages will be spent on making payments toward your loans and other debts that you owe. Then you’ll have very limited money available to save or spend on simple emergencies like food and gas.
A budget shows you a list of all the necessities that you need to spend money on. Anything not on the list does not get purchased. Use budgeting software to simplify this process.
2) Achieve Your Goals
Budgeting helps you save up to start a new business or put a down payment on a new home or a car. Budgeting is like planning for the financial goals that you want to achieve.
Perhaps you want to add a certain amount of money into your savings account each month.
3) Easier to Save Money
A person that budgets generally saves more money than someone who does not budget.
It allows you to assign money to various expenses and purchases each month.
Honor the budget and not spend your money on anything that is not listed on it.
Include adding money to an investment account, savings account, college account, or any other account that you want to save for.
Furthermore, you’ll stop taking money out of your savings if you already know where your revenue is going each month.
The more you practice this, the better you’ll be at building wealth for yourself.
During emergency you’ll have a saved fund and won’t be forced to take out a personal loan and rack up a lot of debt with interest.
4) Peace of Mind
People often worry about money. They worry if they’ll have enough money to pay the bills. However, these are often the same people who don’t budget and just spend their money on leisurely activities. It can be difficult for people like this to put limits on their spending, but it is necessary in order to have financial peace of mind.
When budgeting make categories in there for your various expenses. Put a spending limit on each category.
5) More Flexibility
You don’t need to be completely strict with your budget. If you need to move money from one category to another, you can do so if necessary. Try not to move the money you have in savings, though. Only move around the money set aside for your expenses. For instance, maybe your electric bill is higher than your water bill. So, you would adjust your budget by taking money that is reserved for your water bill and adding it to the money for your electric bill. This strategy prevents overspending.
Look at your budget every day and keep track of your spending status. Make adjustments where necessary.
6) It is Simple
Budgeting is very simple and does not require accounting skills. In fact, you can calculate your spending habits by using percentages for things like spending money, bills, lifestyle costs, weekend splurging, savings, and the various expense categories. This makes it easier to see where all your money is going and what percentage you have left after expenses.
Budgeting may be difficult during the first couple of months till you get hang of it and get habituated. But then, it will get easier to stick to the budget because it will likely be the same expenses every month. If there is an emergency, then you’ll have money saved to pay for it. You see, isn’t that simple?