Budgeting is an important part of your overall financial plan. Going through life without a budget is much like driving in unfamiliar territory without GPS. Budgets are financial roadmaps and they can tell you a lot about your finances. Starting a budget may feel like a chore, but once you get in the habit of using one that works, you’ll never look back. In order to give you the push you need to set up a personal budget, here are a few reasons why budgets matter.
For Financial Goals
You cannot realistically set and reach financial goals without a budget. Your budget will tell you what reasonable goals are and give you an idea of how long they will take to achieve. A budget can also help you stay on track with your goals. It even can even help you see what to cut out in order to speed up the achievement of certain goals. Having a budget will shed light on what money is actually coming in and going out each month.
Tighten Up Unnecessary Spending
For some of you a budget is going to be a rude awakening and that’s okay! Knowing your problem areas is the first step to financial stability. Most people are shocked by just how much they spend eating out or on having drinks with friends. A lot of people don’t have a clue as to how much money they are hemorrhaging each month. Establishing a budget will provide you with the insight necessary to curb spending and start saving more each month.
For a Healthy Credit Score
Unruly spending might have you relying heavily on credit cards to get through each month. If this is the case for you, it’s time to get to work on a budget. Living outside your means and using credit cards to live that way is detrimental to your credit score. Poor credit will make it harder to buy a car, get approved for a business loan, or to buy a house. Budgeting your money gives you an opportunity to cut back on your expenses and spending so you don’t have to rely on credit cards to get you through each month. Less debt = a better credit score!
To Become Financially Independent
Budgets are also great for retirement! Limiting yourself and allocating more money into long term savings will help you achieve the type of retirement you’re dreaming of. If you’re extremely ambitious and want to retire early, you’ll never get there without a budget. In order to retire early you need to aggressively save and make smart investment choices. A budget can’t help you with picking your investments, but it can help you figure out how to set more money aside for those investments.
Budgeting is at the backbone of all sound financial decisions. Coming up with a system that works for you and sticking to it will be extremely helpful to you now and in the future.