The importance of making a budget is a financial lesson that cannot be overemphasized. If you and your family want financial security, following a budget is the only answer.
If you’re like most people, you probably aren’t following expert financial advice by creating and following a budget.
A budget is simply a spending plan that takes into account both current and future income and expenses. Having a budget keeps your spending in check and makes sure your savings are on track for the future.
Still not convinced? Below are six good reasons why everyone should create and stick to a budget.
1. It Helps You Keep Your Eye on the Prize
A budget helps you figure out your long-term goals and work towards them. If you just drift aimlessly through life, spending your hard earned money at every pretty, shiny object that happens to catch your eye, how will you ever save up enough money to buy a car, pay for a holiday in the Caribbean, or save a deposit for a house?
A budget forces you to map out your goals, save your money, keep track of your progress, and make your dreams a reality. OK, so it may hurt when you realize that the brand new gorgeous cashmere sweater in the shop window doesn’t fit into your budget. But when you remind yourself that you’re saving up for a new house, it will be much easier to turn around and walk out of the shop empty-handed.
2. It Helps Ensure You Don’t Spend Money You Don’t Have
Far too many of us spend money we don’t have—and we owe it all to credit cards. As a matter of fact, the average unsecured debt per household reached £60,860 in 2020!
We all tended to know if we are living within our means. At the end of the month, if you had enough money left to pay the bills and put some away in savings, you were on track. These days, people who overuse and abuse credit cards don’t always realise they’re overspending until they’re drowning in debt.
However, if you create and stick to a budget, you’ll never find yourself in this precarious position. You’ll know exactly how much money you earn, how much you can afford to spend each month and how much you need to save. Crunching numbers and keeping track of a budget isn’t nearly as much fun as going on a shopping spree but look at it this way: when your spend-happy friends are making an appointment with a debt counselor this time next year, you’ll be jetting off for that Caribbean holiday you’ve been saving for—or better yet, moving into your new home.
3. It Helps Lead to a Happier Retirement
Let’s say you spend your money responsibly, follow your budget to a T, and never carry credit card debt. Good for you! But aren’t you forgetting something? As important as it is to spend your money wisely today, saving is also critical for your future.
A budget can help you do just that. It’s important to build investment contributions into your budget. If you set aside a portion of your earnings each month to contribute to your Personal Pension, you’ll eventually build a nice nest egg. You may have to sacrifice a little now, it will be worth it down the road. After all, would you rather spend your retirement on holidays, eating out, city breaks away and taking trips to the beach or working because you can’t afford to retire at all???
4. It Helps You Prepare for Emergencies
Life is filled with unexpected surprises, some better than others. When you get made redundant , become sick or injured, go through a divorce, or have a death in the family, it can lead to some serious financial turmoil. Of course, it seems like these emergencies always arise at the worst possible time—when you’re already strapped for cash. This is exactly why everyone needs an emergency fund.
Your budget should include an emergency fund that consists of at least three to six months’ worth of living expenses. This extra money will ensure that you don’t spiral into the depths of debt after a crisis. Of course, it will take time to save up three to six months’ worth of living expenses.
Don’t try to dump the majority of your wages into your emergency fund right away. Build it into your budget, set realistic goals and start small. Even if you put just £50-£100 aside each month your emergency fund will slowly build up.
5. It Helps Shed Light on Bad Spending Habits
Building a budget forces you to take a close look at your spending habits. You may notice that you’re spending money on things you don’t need. Do you honestly watch all 500 channels on your costly TV plan? Do you really need 30 pairs of black shoes? Budgeting allows you to rethink your spending habits and re-focus your financial goals.
6. It’s Better Than Counting Sheep
Following a budget will also help you sleep better. How many nights have you tossed and turned worrying about how you were going to pay the bills? People who lose sleep over financial issues are allowing their money to control them. Take back the control. When you budget your money wisely, you’ll never lose sleep over financial issues again.
There are countless advantages of following a budget. Time to start budgeting!
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