Setting up a budget may be one of the few ways you can seize control of your finances before allowing matters to drift towards disaster.
Disaster can take many forms, such as:
- Not being able to take advantage when opportunity knocks.
- Not being able to care for family needs or emergencies.
- Not being able to enjoy a comfortable retirement.
- Having your credit tarnished, or worse!
- Seeing yourself forced to file for bankruptcy.
Budgeting can help ensure you don't spend more money than you earn. A budget is simply an accounting of your income and expenses during a certain period of time, usually a month or a year. It involves looking at how much money you expect to earn and then determining what you can afford to spend.
Having a budget does not prevent you from spending money, using credit cards, or taking out a loan for special purchases. Instead, a budget encourages you to be certain you can afford what you are buying and guides you through what lifestyle changes, if any, you will have to make in order to pay for it.
Having a budget can also help you save! These savings can be used as a down-payment, or as an emergency fund in case of a sudden illness, or for having to make significant repairs to your home or car, or serve to buffer if you lost your job. Ultimately, a budget encourages you to spend your money responsibly and in moderation.
Having a budget does not prevent you from having fun! On the contrary, a budget gives you greater freedom to spend the money you earn. Trust this advice: It is a far better thing to have control of your budget, than to have your spending control you!
As I mentioned earlier, most people enjoy buying things. Of this group, it may be of no surprise that most people also don't like to keep tabs on their spending. So here are more reasons you might find it worth the trouble to develop a formal budget:
- A budget helps you prepare for large expenses, like those big bills that come once or twice a year. Car insurance is one expense that immediately comes to my mind.
- A budget helps you prepare for unpredictable expenses.
- A budget helps you identify items that are costing too much. You may be buying items that are no longer essential, or you may be able to find some essentials at a better price.
- A budget will ease the transition of becoming a homeowner. Getting past the closing cost is one thing. Wait until you get inside your new home and find the need to make some changes for your own comfort!
- Budgeting helps you keep control of your financial future.
Having a solid budget allows you to control your finances, rather than letting your finances control you. Without the planning and discipline required by a budget, you may be forced to take on too much debt, or you may have to deprive yourself of things you want. Budgeting forces you to look at your financial situation realistically, thus allowing you to make the best decisions for your future.