There are major advantages of keeping a budget. We all live busy lives and in that busyness, we often fail to see the advantages of keeping a budget.
Budgeting? Who has time to keep track of money spent?! As parents sometimes you feel you don’t even have time to take a shower!
But, we work hard for our money. Therefore, we should make sure we spend the money wisely. That’s where a household budget comes in.
It’s a good tool to see at a glance what we have coming in, what’s going out (and what that money is paying for) and if there’s anything left at the end of the month to put into savings.
Before we dive into exactly what a budget can do for us, let’s consider for a minute what will happen if we’re not tracking income and expenses.
We may end up spending more than we’re making in a given month (or two, or three).
Over time that can put us into some pretty hot water financially. We may also spend a lot more than we’d like to believe on things like eating out, going to the movies or new clothes.
Who Wants to Be a Millionaire?
Believe it or not, it’s probably easier to achieve millionaire status than you think. According to MarketWatch.com, simply by saving $2,000 per year for seven years, a 15-year-old is capable of becoming a millionaire at the age of 65.
Even more surprising, that same teenager doesn’t have to save another penny after the initial seven-year period, if the money is invested properly. Amazing, isn’t it?
Assuming you’re older than 15, here’s some additional information that may be of interest to you. It’s based on the fact that you start with $10,000 to invest and increase your portfolio by seven percent a year.
* Age 25 = approximately $300 per month until retirement age
* Age 35 = approximately $775 per month until retirement age
* Age 45 = approximately $1,850 per month until retirement age
* Age 55 = approximately $5,700 per month until retirement age
Looking at the huge difference between each ten-year increment, it’s easy to see why you need to start saving for the future as early as you possibly can.
For a better explanation, read: How to become a millionaire
Continue reading to learn more about some of the best ways to start saving money now!
Advantages of Keeping a Budget
Having a budget gives us more control over where we want to really spend our hard-earned cash. Maybe that’s dinner and a movie, but maybe it isn’t.
Wouldn’t it be nice to have an actual choice?
1. It Tracks Where Your Money Is Going
Ever feel like your money disappears? A budget simply tracks your money. You record where the money comes from each month (your income) and then write out everything you spend it on.
Start with your regular monthly bills like mortgage or rent, car payments, utility bills etc. What’s left after all the bills are paid is your discretionary income.
2. Helps You Identify Things You Waste Money On
Having it all in front of you in black and white helps you identify things you’re wasting your money on.
It makes you reconsider if you really want to spend well over $200 a month on Cable TV or $150 on your large cell phone plan.
Or how about that yearly magazine subscription to something you no longer read? Go through your expenses and reevaluate if this is REALLY how you want to spend your paycheck.
3. Allows You To Be Proactive About Savings
Saving money without a budget is hard. We go in with the best of intentions at the beginning of the month, but somehow there isn’t anything left at the end of the month.
A budget gives you a chance to be a bit more proactive. Set aside some money for savings at the beginning of the month, even if it’s just $20.
Put it in the budget as a regular expense, just like you do with your other urgent bills. If you need to, open separate savings account so you’re not tempted to spend it.
4. Ensure You’re Not Spending More Than You’re Making
Most importantly, your budget will keep you on track and help you make sure you’re not spending more than you’re making.
And I don’t have to tell you that that’s pretty important for your financial wellbeing.
How To Create A Budget
Creating (and sticking to) a reasonable budget is one of the first steps to becoming financially secure. Yes, it’s still possible to save money without a budget.
But, you’ll typically find it much easier to save when you have at least a basic outline in place.
Track Your Spending Habits
Many people make the mistake of not tracking their income before they start to put together a budget. This makes the task almost impossible to accomplish. You have to know where your money goes in order to get a handle on your current spending habits. Once you do that, it’s much simpler to create a money management plan that you can live with.
It’s important to keep in mind that if you don’t track your spending, what you’re going to end up with is a “wish list” of how you want to spend your money.
Unfortunately, it won’t take you long to figure out that budgets don’t work that way and that worse yet, you haven’t accomplished anything at all.
Write It Down
Whether you choose to tackle your budget using an app or the old-fashioned way (with pen and paper), don’t cut your expenses so much that you take all of the fun out of life. Make sure to earmark money for things like entertainment and occasional splurges. If you don’t, you’ll probably end up throwing your budget out the window in no time at all.
For example, if you love to eat out and do so quite frequently, don’t give it up completely. Tell yourself you’ll eat out once a week instead. Or as an alternative, try this. Do an online search, in effort to find copycat recipes of your favorite restaurant meals. You’ll probably be surprised by how many are available if you just take the time to look.
What’s the point, you ask. Well, when you make these dishes at home, you’ll typically save money nine times out of ten. Add this savings to your piggy bank!
The best way to start tracking expenses is to make a list of major categories. Include things like:
* Rent/mortgage payments (also homeowners insurance, general household upkeep, etc.)
* Medical insurance
* Utilities (trash pick-up, water, cell phone, electricity, etc.)
* Car expenses (gas, insurance, car loan, etc.)
* School expenses (school lunches, tuition, fees to play sports, etc.)
* Personal needs
* Work-related expenses (dues, etc.)
* Credit cards
This is by no means a complete list. Everyone’s budget is going to be different. Take the time to think about everything that you’re required to pay during a one-month time span.
Place each entry under the proper category. Next, figure out how much you spend on each category, within that same 30-day period.
If you have any unusual expenses, save time and simply put them under “miscellaneous.” You can always go back and make adjustments later.
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