A budget is simply a spending plan that takes into account both current and future income and expenses. The importance of making a budget is a financial lesson that we cannot overemphasize. Having a budget in place helps keep spending in check and makes sure savings are on track for the future. A budget helps to create financial stability. Tracking expenses and following a budget makes it easier to pay bills on time, build an emergency fund, and save for major expenses such as a car or home. Overall, a budget puts one on stronger financial footing for both the day-to-day and long term.
What Are Some Key Reasons to Have a Budget?
It Helps You Keep Your Eye on the Prize
A budget forces you to map out your goals, save your money, keep track of your progress, and make your dreams a reality. It may hurt when you realize that the brand new watch or the gorgeous cashmere sweater in the store window doesn’t fit into your budget, but when you remind yourself that you’re saving for your financial goals, it will be much easier to turn around and walk out of the store empty-handed.
It Helps Shed Light on Bad Spending Habits
Building a budget forces you to take a close look at your spending habits. You may notice that you’re spending money on things you don’t need. Do you honestly watch all 500 channels on your costly extended cable plan or multiple streaming subscriptions? Do you really need 30 pairs of black shoes? Budgeting allows you to rethink your spending habits and refocus your financial goals.
It Helps You Prepare for Emergencies
Life is filled with unexpected surprises, some better than others. When you get laid off, become sick or injured, go through a divorce, or have a death in the family, it can lead to some serious financial turmoil. Of course, it seems like these emergencies always arise at the worst possible time—when you’re already strapped for cash. This is exactly why everyone needs an emergency fund.
It Helps Ensure You Don’t Spend Money You Don’t Have
Credit cards are easily overused causing one to overspend. Tracking one’s spending with a budget in mind brings control and, hopefully, left over funds for investing for the short and long term goal and/or completing your emergency fund.
In conclusion, budgets are the cornerstone to any financial plan. The more accurate the budget, the more accurate the recommendations that will get you from where you are today to where you want to go!