Why a Budget is the key to Your Future Dreams and Aspirations
If you’re like most people, the word ‘budget’ can be enough to make you cringe. It’s common for people to assume that budgeting means living like a pauper and scrimping every penny like a miser.
In reality, a budget is nothing more than a record of the income you receive and the expenses you pay. It’s a snapshot of your financial health – or lack of health, as the case may be.
A simple budget is easy to create. You can use a simple sheet of paper or open a spreadsheet on your computer. Alternatively, there are lots of free budgeting apps you can download.
Simply list all of your sources of income into one column. In a separate column, list all of your bills, living expenses and other costs. Tally up each column and take a careful look at the differences.
If your income exceeds your expenditure, you’re doing well. However, if your expenses column is higher than your income amount, chances are it’s time to start slashing some of your costs.
Why Everyone Should Have a Budget
Creating a budget gives you a tool for getting the most out of your hard-earned money. When you can see at a glance exactly how much you spend each month and where your money goes, it becomes easier to spot any areas where you might be overspending.
One of the most common areas where people overspend without realizing it is on debt repayments. Seeing the total amount you spend on debt repayments in black-and-white can be eye-opening for many people.
The interest charges on those outstanding debts have a dramatic effect on your total repayment amounts. If you’re paying too much of your income each month to banks or financial institutions in debt repayments, it might be time to consolidate your cards into one loan with a lower interest rate. You could potentially reduce your monthly payments and free up your budget a little.
Using Your Budget to Achieve Your Financial Goals
One of the primary benefits of having a budget is that you’re able to use it to help you achieve your goals. You might want to save money to pay for that dream vacation or pay for a spectacular wedding or save for a home deposit or even to pay for a college education. Your goal might simply be to reduce your credit card debt or pay off your student loans faster. No matter what your financial goals might be, a budget provides a strong tool that can help you achieve them.
Look closely at your expenses column and work out any areas where you might minimize your repayments. Then determine how much of your income you’re comfortably able to deposit into a savings account each month.
When you’ve decided on a figure that you can save, set up a direct debit agreement with your bank. Have your savings deducted from your checking account and deposited into your savings account automatically. If your financial goal is to get rid of your outstanding debt balances, put the amount of money you can save each month towards repaying those debts.
When you allocate money to be put aside automatically, you’re more likely to reach your financial goals. You’re also more likely to keep a closer eye on your budget each month.