Many of us work hard to earn a living. Therefore, we should know where our money is going and how to spend it more wisely. That’s where a household budget comes in. It’s a good tool to see what is 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.
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, maybe a new car, or something else. Wouldn’t it be nice to have an actual choice and the knowledge on hand to make that decision?
It Tracks Where Your Money Is Going
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, starting 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 discretional income.
It Helps You Identify Where Your Money is Wasted
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 pay check.
A Budget 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 more proactive. Set aside some money for savings at the beginning of the month, even if it’s just $10-$20. Put that money in the budget as a regular expense, just like you do with your other urgent bills. If you need to, open a separate savings account so you’re not tempted to spend it.
It Ensures You’re Not Living Beyond Your Means
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 well being.
It Keeps You from Forgetting Important Payments
Finally, it will help insure that your most important and necessary bills are paid and paid on time. Have you ever thought you paid all your bills only to find out later on that you forgot one? Sometimes once you realize your error you don’t have enough money to spend on that bill. It can end up costing you more in the long run due to late fees or having to spend money that you have in savings that you need for something else.