Top 5 reasons why personal budget planning is important
The most important step on the path to financial security is creating a budget. Put simply, a budget is a spending plan that will help you live financially within your means. It will put your income to work by allocating what you earn to expenses and savings.
Most of us think we know where our money is going, but creating a budget takes out the guesswork. Here are the top five reasons why you should start budgeting today.
1. Budgeting helps you manage and minimise debt
When you prepare a budget, allocate a portion of your income to finance the expenses you know are coming so you don’t take on new debt. You may also want to put some of your income to savings which can help you pay off any existing debt. One popular budgeting method is the 50-30-20 approach where 50% of your after-tax income is allocated to needs, 30% to wants, and 20% to savings. When you have the balance right you will start to see both your debt and your savings in better shape.
2. Budgeting helps prepare you for emergencies
With an appropriate budgeting plan, you can aim to contribute a certain portion of your income each month towards your emergency fund. In the event of a crisis, having enough money to cover your living expenses for three to six months will help keep you financially sound. Creating a budget and sticking to it will help you bolster your finances for unexpected situations.
3. Budgeting helps you be more disciplined with your spending
It is often said that if you don’t track something, you can’t measure it – and the same is true with our spending. A budget helps you focus on how much you’re spending and in which areas. When you know your budget limits, you will be more disciplined at times when you are tempted to splurge. You may also discover ways to reduce outgoings each month which can bring you closer to achieving your financial goals.
4. Budgeting helps build your retirement savings
With your budget in place, you may choose to invest some of the extra funds you are saving into a longer term goal such as superannuation. The bigger your nest egg, the more likely you will enjoy a comfortable lifestyle during your retirement. When you contribute additional 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
Whatever your financial goals, your best chance of achieving them is by closely following your budget. Month by month you will see the savings build and before you know it you will have the necessary funds for that overseas holiday, the new car you’ve been dreaming about, or a solid starting point to fund your children’s education. A budget is simply a plan to achieve a brighter financial future and when you stick to the plan, the benefits will come.
At Humaniti, we want to help you create a plan to get a handle on your spending and achieve your financial goals. Your financial health will see a significant improvement once you set a budget and stick to it. Humaniti’s personal finance and budgeting app can help with that first important step of budget planning as well as the ability to easily track where your money is going each month.
* Disclaimer – the information in this post is general only and does not constitute financial advice.