Why Budgets Are Important
For most of us, a budget is arduous and time-consuming, but it is the first step in securing your financial future. Do you want to buy a home? Go on a fabulous vacation? Retire comfortably? Then planning is critical, and you must know how you are currently spending your money. The merits of a budget include:
The foundation for establishing and reaching financial goals — You must understand your overall financial situation to be able to set financial goals. The first step is to understand your income and expenses. Review your bank, credit card, and income statements for the past six to 12 months. Once you know where your money is going and if you have a surplus or deficit, you can establish goals, such as paying off debt or saving for something you want.
Helping you spend based on your priorities — Now that you understand your complete financial picture and have established goals, you can begin to control your money instead of it controlling you. It will help you decide if you need or want to make sacrifices to meet specific goals. It will also help you determine how much debt you can afford if, for example, you are interested in buying a house.
Building wealth and saving for retirement — You can also begin to focus on the long term as part of your budget. Identify how much you can put toward savings and investments so that you can reach some of the goals you defined. You will be able to clearly see what spending you may need to reduce or cut in order to save. And retirement warrants special attention, so put away as much as possible. Even $100 a month can increase your savings by tens of thousands of dollars by the time you retire.
Reducing stress — This is so important. Feeling confident about your finances will significantly reduce stress and help you enjoy the benefits of your hard work.