Budgets, numbers, calculations, and spreadsheets- it's a pain to do, but it's such an essential component for financial health.
Like it or not, budgets put you in touch with the reality of your financial situation by pointing out exactly where you need to tighten your pockets and which areas you can afford to relax.
If you find yourself always waiting for the next paycheck, not having enough savings, or wondering what happened to your money at the end of the day, you need a budget.
A budget is important for developing a strong financial game-plan, and these are the reasons why:
- A proper budget will help you stay focused on what you want
Creating a budget includes asking yourself what your life goals are and how your finances fit into those goals. Asking this question forces you to keep your budget simple, and every part of your budget will have a specific purpose in the overall grand scheme of your life.
- You stop guessing where your money went
We all know this feeling. One minute we have $100 in our pockets and the next, you're looking at a balance of $10. Wait, what? Budgeting tells you what you spent on, exactly how much money you're making and how effectively you're splitting up that money to cover your basic needs while still saving your income.
- You nip overspending in the bud
For example, let's say you have a designated amount allocated for a category like Gaming and you've allocated $100 a month on this category. You spend $75 dollars on your PS4 games and $25 dollars on gaming equipment. This means you know you have to wait until next month to purchase the new Assassin's Creed game or use it as a reference point that you might need to re-shift your priorities and how you're spending that money. Overspending is a big issue for many people that leads to a lot of stress financially.
- Without a budget, you're going to spend more than what you earn each month
And this is where debt starts accumulating. According to SpendMenot, Americans hold a total of $1 trillion in credit card debt. If you think budgeting restricts your spending, think about what it would feel like to see a big portion of your salary going towards loan repayment. Imagine the stress of not having enough to pay for necessities like food, rent, your mortgage, bills, school fees, and more when most of your income is already committed to repaying your debt.
- It helps you prepare for tax season
Having a budget means customizing and personalizing it to meet future expenses such as taxes that are usually paid or filed once a year. A budget can help you allocate money aside in the event you owe money. If you'd like to better grasp your taxes, then a tax calculator can help. Check out the pricing here.
The fear that most people hold about how restrictive a budget can be is unfounded. You get to decide how much you want to spend on each category. As long as you save and meet your other needs, you don't have to feel bad or guilty about it.