Finances can often be a really touchy, difficult subject for a lot of people which is completely understandable. My goal is to get you to feel empowered when it comes to managing your finances. I want to give you the knowledge and tools you need to be in control of your financial situation. And that starts with budgeting because as Benjamin Franklin said “By failing to prepare, you are preparing to fail”.
Budgeting is the process of determining how your money will be spent. It’s about balancing your income and expenses so that you do not spend more than you make and end up in a significant amount of debt. A budget is a simply a spending plan.
So why do you need a budget:
- Ensures that you don’t overspend and go into debt
As mentioned above, budgeting will help you to not spend more money than you make and keep you out of debt. It is so easy nowadays to just swipe the credit card and worry about the consequences later, but that is not a healthy way to look at your finances. The problem with debt is that there is interest charged on it so as times goes by, you end up paying a lot more for something than you would’ve if you had paid cash.
- It helps you keep your eye on the prize
Budgeting forces you to look at and determine your short-, medium-, and long-term goals. Once you have set out your goals and you establish your budget with those goals in mind, it makes it easier to stick to your budget. When you feel like you want to be impulsive and splurge on an unnecessary item that you haven’t budgeted for, it helps to remind yourself of why you have the budget in the first place.
- It helps you prepare for emergencies
As much as you need to establish your spending plan, it is just as important to set up a savings plan. Life is unpredictable and can throw all kinds of curveballs and it helps to have an emergency fund set up for when that happens. Your savings plan will have different components but an important part is the savings that you only use for emergencies which, over time, should be about 6 months’ income. This may sound like a huge task to put away that much money, but budgeting will ensure that with incremental changes it can be a reality.
- It sheds light on unnecessary spending
Establishing a budget forces you to take a look at your spending patterns over the previous few months, which can shed light on unnecessary spending. There are often small debit orders or weekly purchases that we make out of habit (like a morning coffee) that can make a big difference to our expenses over a long period of time.
- It helps to reduce stress
Many people spend hours worrying about finances and how they are going to make ends meet until the end of the month. A budget helps you take control of your finances instead of letting it have control over you. Once you have established your budget, it will reduce stress as you have a plan of action that is achievable.
6. It will lead to long-term rewards and benefits
It is just as important to plan your budget for the present as it is to plan for the future. Planning for retirement by building certain savings and investments into your budget can ensure that you can retire stress-free and possibly a few years earlier than you thought.
So as you can see from the above, budgeting is so beneficial and really the starting point for your journey to being the master of your finances.