People have different ideas about what the word “budget” means. You might think that budgeting, or “living on a budget,” means you have to live below a certain standard or can’t buy the things you want. On the other hand, you might think of a budget as a way to organize your spending and help you set and reach your financial goals.
When you make a budget, you choose where your money goes so you don’t have to wonder where it all went.
What Exactly Is A Budget?
In its simplest form, a budget is just a list of how much money you make and how much you spend over a certain time period. Depending on what you need, you can make a budget for a month, a quarter, or a whole year. A good budget can help you figure out what you need and what you want, keep you from wasting money, and change as your financial situation does.
Everyone has different incomes, resources, and priorities, so budgets can’t be the same for everyone. Your budget should be based on how much money you make and how you live.
The Importance Of Budgeting For Your Financial Wellness
Getting You To Work On Your Long-Term Goals
A budget helps you think about and work toward your long-term goals. How will you ever save enough money to buy a car or put a down payment on a house if you just go through life without a plan and throw your money at every new and shiny thing that catches your eye?
A budget forces you to write down your goals, save money, keep track of your progress, and turn your dreams into reality. By making a budget, you can see how much money you make and how much money you spend. This will help you figure out what you need to do to reach your goal, whether it’s buying a house in a few years or going to graduate school.
Can Help You Not Spend Too Much
Too many people spend money they don’t have, and credit cards are one of the main reasons. TransUnion, a credit bureau, says that by the end of 2022, the average credit card debt per household had risen to $5,805.
Before the age of plastic, people usually knew if they were spending more than they could afford. At the end of the month, they were on the right track if they had enough money to pay their bills and put some away in savings. People who use their credit cards too much and spend more than they should don’t always realize it until they’re deep in debt.
But you’re less likely to be in this situation if you make a budget and stick to it. You’ll know exactly how much money you make, how much you can spend each month, and how much you need to save.
Can Make It Easier To Save For Retirement
Let’s say you’re good with your money, stick to your budget, and never let your credit card debt go past the due date. Budgeting can help you save money and help you spend money wisely.
It’s important to set aside money for savings and investments on a regular basis. If you save some of what you earn each month for your individual retirement account (IRA), 401(k), or another retirement fund, you’ll have a nice nest egg by the time you retire. Even if you have to give something up now, it will be worth it in the long run.
Prepares You For Emergencies
Unexpected things happen all the time in life. When you lose your job, have an unexpectedly expensive home repair, get sick or hurt, go through a divorce, or lose a family member, it can cause a lot of trouble with your money. In these kinds of situations, having an emergency fund can help.
A general rule of thumb is that an emergency fund should have enough money to cover living costs for at least three to six months, and it should be taken into account when making a budget. With this extra money, you won’t have to take money out of your savings for long-term goals like paying off debt.
Getting enough money to live for three to six months will, of course, take time. Don’t try to put most of your paycheck right away into your emergency fund. The best way to do it is to plan for it in your budget, make goals that are realistic, and start small. Even if you only set aside $10 to $30 a week, your emergency fund will grow over time.
Can Show How You Spend Your Money
When you make a budget, you have to take a close look at how you spend your money. When you look at your expenses, you may find that you’re spending money on things you don’t need, like a cable TV subscription. When you make a budget, you can rethink how you spend your money and refocus on your financial goals.
If you look at your expenses, you might find that one month you spent more money on eating out than on cooking at home. By looking over your budget, you can make changes that work. If you find that you’re spending more than the budgeted amounts for these things, you might decide to cut back on luxury or non-essential spending in order to save for a new car or a major home improvement project that could also raise the value of your home.
A budget is just a plan for spending money over a certain amount of time that takes into account expected income and expenses. It can help you get one step closer to having enough money for your needs. Having a budget and sticking to it can help you control how much you spend and make sure you save enough for emergencies and long-term goals, like a comfortable retirement. If you’re still looking for more information on budgeting for your financial wellness, get in touch with Heritage Financial Credit Union.