Creating a household budget is an important step in to financial freedom. These benefits of budgeting highlight why you need a personal budget to track your income and expenses.
Day in and day out we work hard to earn a living. With all that hard work, we should ensure that the money we earn is spent carefully. A budget is a great way to quickly see what money is coming in, where the money is being spent, and if there’s any money left at the end of the month for other goals.
The pitfalls of not using a budget
Before we look at how a budget can help us, think about what happens when we aren’t keeping track of income and expenses.
Without a budget to track our spending, we may end up spending more than we’ve made in a particular month. Repeatedly spending more that we make means we have to make up the difference somewhere. Maybe that’s paying bills late (accruing extra fees and charges) or adding more credit card debt.
1. Creates a plan for your money
Do want to save money? Pay off credit cards or student loans? Reduce spending?
Regardless of what your financial goals are, a budget helps outline those goals and plan for them.
2. Identifies problem areas
These days, we pull out our debit cards for nearly every purchase. But that presents a problem: we are detached from what those purchases actually cost us. We don’t pay as much attention to all those little amounts coming from our checking account.
When you start tracking your expenses with a budget, you might be shocked. Maybe it’s your grocery spending. Maybe you go out to eat more than you ever realized. Did Chic-fil-a, pizza, or ordering curbside really add up to that much last month?
When it’s all right there in black and white, it’s easy to identify exactly where you are wasting your money.
You’ll have to evaluate if the spending is really in line with what you want to use those hard-earned dollars for. Review each of your expenses and decide if these expenses are how your really want to spend your pay check.
3. You Can See Where Your Money Is Going
The purpose of your budget is to simply track your money. You can see what income you get each month and how you choose to spend that money each month.
You can identify how much you are spending on various categories like household, auto, or food. A budget also lets you know if you have money left over that you can use for other financial goals.
4. A Budget Help You Plan For Savings
Without a plan to save money, chances are, it doesn’t happen. At the beginning of the month, we tell ourselves we will save XX dollars, but somehow there isn’t anything left at the end of the month.
Budgeting allows you to pay yourself first. Put any savings as an expense, just as you would with your regular bills. Even starting with a small amount like $20 a month is a step in the right direction!
Keep your savings separate from your regular checking account. Open up a savings account, or if you don’t have enough to meet the minimum amount yet, try a jar at home in the meantime.
5. Ensures You’re Not Spending More Than You’re Making
One of the most important aspects of a budget is to make sure we aren’t spending more than we make.
When our expenses exceed our income, we end up paying bills late or adding to our debt just to make ends meet. When you have a budget, you can see all your expenses at once and decide what expenses to reduce in order to stay within your income.
6. Puts you in control
Having a budget puts you firmly in charge of your finances. You decide what your financial priorities are and what you want to spend your money on.
Benefits of Budgeting
A budget gives us more control over what we really want to spend on hard earned dollars spend our hard earned cash. Maybe that’s dinner and a movie, but maybe it isn’t. Wouldn’t it be nice to have an actual choice?