Having a budget is essential to planning your finances and ultimately, planning your life. If you don’t know where your money is being spent, it becomes very hard to take control of your finances. Without financial planning as basic as monthly budgeting, you can put yourself at risk for getting in over your head with debt through credit cards and loans as well as unexpected payments such as medical bills or emergencies that can leave you stranded and even desperate. Far too often, people put off planning a budget because it feels cumbersome, slow or takes away from their free time after work or school. But without a budget in place, you can easily find yourself in trouble.
Say, for example, your take home pay is $2,500 a month. This has to cover your rent/housing, insurance, health care, debts, food and entertainment. However, if you are not keeping track of how much you are spending, you can easily overspend in one category and find yourself short very quickly. (For more, see: The Beauty of Budgeting.)
Creating a Budget Is Crucial to Survival
Budgeting is essential to your survival and also to thrive and succeed in life. Even individuals who are capable of bringing in a lot of money through their hard work and good ideas, still do not thrive over the long term if they cannot budget their expenses. That is where you hear about millionaires or people who won the lottery, who went bankrupt. You might wonder how is that possible and it boils down simply to budgeting.
Budgeting itself is not hard. In fact, you can learn how to create a budget in third grade. So even if you have never done it before or had any guidance whatsoever up until this point, you can create and maintain a budget monthly that is healthy on your wallet and keeps you worry free. By budgeting properly, you will spend less than you bring in and avoid the stress and pressures associated with over spending and not being able to make ends meet.
When you plan out a budget properly, you will know what your living expenses are, what expenses you can do without and how much you need to save. You will be prepared for emergencies and will know how to prioritize upcoming expenses you have. Budgeting helps you plan for life.
For many young families, there has not been sufficient education around personal finance. Without knowing how to budget and plan for your life, you can easily get in trouble despite the best of intentions.
Using financial software to keep budgeting on track does not have to be difficult. You can use very basic financial software for free like mint.com or a more comprehensive solution that many financial firms offer for little or no cost through eMoney to help you plan out your expenses and savings. (For more, see: 6 Best Personal Finance Apps.)
It Is Simple to Start and You Can Get Going Right Away
Basically, you enter in a desired budget for your expenses for each of your primary categories such as your rent/mortgage, food, insurance, credit card payments and more. You link your bank accounts to the software so it automatically pulls your information and starts organizing it for you. Before long, you will have information about your last month’s expenditures and your current finances. You will know where you are spending your money.
Knowing what you are spending is the key to budgeting. Planning a budget is not set in stone - you can and must adjust this to your lifestyle. Whether you are saving up for a house or extra college education or you want to pay off your loans within a specific amount of time, you can set goals in your financial software and associated budgets to help you meet those goals within a specific time period.
By using basic financial software, you set yourself up for success. You are able to see patterns in your spending. Did you spend a lot on entertainment or coffee shops last month? Knowing what you are spending can help you change your spending habits and direct your money to where you can reap the best rewards. Perhaps in this instance it would involve cutting your expenditure in half and using the freed up cash towards paying off your debt or putting it aside in savings.
Budgeting may sound elementary, but it is the cornerstone of sound fiscal management. Knowing what you earn and what you spend is the first step in a long journey. (For more, see: Four Easy Budgeting Techniques You Should Master.)