The road to financial security often starts by taking the time to sit down and create a budget. A budget puts your income to work by strategically allocating money to expenses and savings. In other words, a budget is a spending plan that will enable you to live within your means. At the same time, budgeting can be a powerful way to help you save enough money to achieve your long-term financial goals.
In this post, we discuss five reasons why budgeting is important, and why you should start budgeting to make the best use of your available income.
1. Budgeting helps you manage and minimise debt
Budgeting helps prevent the accumulation of new debt. By strategically allocating your income you can lower your debt. When you prepare a budget, you aim to allocate a portion of your income to finance your expected expenses, without taking on new debt. In addition, budgeting helps you focus on saving money each month. By doing so, you will be able to pay off your existing debt if you have any. The 50-30-20 approach is a popular budgeting method, but there are many others too.
2. You’ll be more prepared for emergencies
With an appropriate budgeting plan, each month you can aim to contribute a certain portion of your income towards your emergency fund. Most experts suggest that to ensure that you stay financially sound during a crisis, your emergency fund must have enough money to provide for your living expenses for three to six months. When you create a budget and stick to it, you can prepare for unplanned emergencies in a better way.
3. Budgeting helps you be more disciplined with your spending
When you create a budget, you keep a close watch on your spending to identify the areas of improvement and where you can lower your expenses. When shopping, you will be inclined to follow the spending limits specified by you in your budget. This can help you to be more disciplined with your spending and keep you on track to achieving your financial goals.
4. You can build your retirement savings
When you follow your budget, every dollar you save will contribute towards achieving your financial goals. For example, after allocating your savings to emergency and sinking funds (for any major upcoming expenses), you can elect to invest any remaining portion of your savings to your superannuation fund. This can help ensure you’ll be more comfortable during your retirement. By contributing a certain amount of money each month to your super fund on top of your employer’s contribution, you can supplement your retirement income.
5. Budgeting helps you achieve your financial goals
By closely following your budget, you can achieve your financial goals. Whether you want to buy a car or finance your child’s education, you can tailor your budget accordingly to achieve your desired savings amount each month. Budgeting is by no means a golden egg, but a clear plan is half the battle.
Budgeting can give you complete control over your finances and help you devise a plan to achieve your financial objectives. Your financial health can markedly improve once you make a budget and stick to it. If you don’t have a budget, take the first step and improve your financial condition by discovering how Humaniti’s personal finance and budgeting app can help you build a brighter financial future.
* Disclaimer – the information in this post is general only and does not constitute financial advice.