Almost without fail, someone in my live events says they do not see the importance of budgeting and that they earn too little to budget. My response is always the same: Budgeting is one of the important keys to financial success. Many people are often put off by the simple term “budget”. They associate it with restrictions and hassle. They often feel that they earn to little to budget or have other excuses. However, budgeting can help you save money and allow you to have more money to spend. Your budgeting style can determine how successful you are at financial planning. Here are some reasons that will help you look at budgeting in a new light and start budgeting.
1. The first reason you need a budget is that budgeting stops you from overspending.
Most people who do not have a budget end up spending more than they earn each month and accumulating debt. This limits their spending power in the future as more and more of their incomes goes to debt repayments. If you are worried that budgeting will restrict your spending, consider what it would feel like to have a big portion of your salary going towards loan payments. Imagine the stress of looking for a way to pay for food, school fees, shelter and so on when most of your paycheck is already committed to debt repayments. Having a budget saves you from such a predicament.
2. The second reason why you should have a budget is budgeting helps you reach your goals.
A budget is a plan that helps you prioritize your spending. With a budget, you can allocate your money on the things that are most important to you. This goal may be getting out of debt, saving up for a home or starting your own business. Your budget creates a plan to accumulate money for such goals and lets you track your progress to make sure you are on course to reach your goals.
3. Budgeting helps you save more money.
People who do not have a budget tend to save less money than people who do. This is because when you budget, you assign your money to do certain things including save. You do this by making saving a budget item and automatically putting money into a savings or investment account each month. As you do this, you will begin to build wealth. This will give you true financial freedom in the future.
4. Budgeting helps you stop worrying.
Many people worry about the future and what it will bring. A budget helps you do something about improving your future. What if I lose my job? What if my business collapses? What if my car breaks down? What will I live on when I retire? Will I ever have my own house? When you know that you are accumulating savings and investments towards your goals, you become more confident about your future as you are now no longer depending on luck or fate. You have no reason to worry.
5. Budgeting helps you to be flexible.
Budgeting need not to be rigid and you can move money between categories as you need to throughout the month. This allows you to recognize changing circumstances and adjust accordingly. For example, an unexpected increase in expenditure in one category can be paid for by reducing spending in another category. So if my electricity bill shot up unexpectedly, I can compensate by reducing my entertainment for the month. The fear most people have that a budget is restricting are unfounded because you can decide how much you spend in each category. So if you want to put more of your money towards your leisure activities, as long as you are saving and meeting your other needs, you should not feel bad about that. However once you set up limits, you need to stick to them! If you aren't doing that, you may have to address this weakness. Budgeting is not about limiting the fun in your life, but opening up opportunities and having money in order to have more fun. The key is that you have to remember to include these fun categories in your budget.
6. Budgeting puts you in control.
If you feel like your money is out of control of and are constantly wondering where it went or what happened to it, budgeting can put you back in control. It allows you to prioritize your spending, track how you are doing and realize when you need to stop. It puts a solid plan into place that is easy to follow and it gives you the chance to plan and prepare for the future. It is the biggest tool you have to change your financial future. Budgeting gives you the power to make changes starting today.
Budgeting should be simple. You can simplify the process by using percentages of your income to cover your set expenses, savings amounts and your spending money. Then you simply track the money as you spend it. This means there are fewer categories and a lot more flexibility. Using an app on your smartphone or laptop makes the process a no brainer. Send me an email to get tips on the best apps available, and some are free!