You work hard for your money.
So, you want to make sure your money works hard for you and that you’re spending it wisely.
That’s where your budget comes in.
It’s a tool you can use to see, at a glance, what money you’ve got coming in, what’s going out (and why), and if you have anything left at the end of the month for savings.
If you aren’t tracking your income and expenses, you probably know what happens…
You might be spending more than you earn month after month. But, you’re not sure and just have a general sense of uneasiness that you might be in financial hot water. It’s not pleasant, but shining the light on your spending habits and finally tracking what you spend will give you peace of mind.
Yes, you may not be doing as badly as you think.
And if you are, well you NEED to know about it so you can take action, NOW. Not wait til things are worse off in 6 months’ time.
Having a budget helps us to be more intentional about where you spend our money. It gives us control. Do you want to spend your hard-earned cash on an expensive dinner out? Maybe you do. Maybe you don’t. Wouldn’t it be nice to have an actual choice?
Here are 7 more reasons why you must have a household budget:
Your Household Budget Tracks Where Your Money Is Going
A budget simply tracks your money. You record where the money comes from each month (your income) and then write out everything you spend it on, starting with your regular monthly bills like mortgage or rent, car payments, utility bills etc. What’s left after all the bills are paid is your discretional income.
Your Budget Helps You Make Sure You Have Enough For Your Essentials
Have you ever been caught out by a utilities bill or car registration that came seemingly out of the blue?
We shouldn’t really be surprised. They happen every quarter (or year).
But, if we haven’t budgeted properly for them it can cause a bit of financial strain. Especially if they’re due around Christmas time or all at the same time.
When you write down all your expenses into your budget, you can also write down how much you need to put away each month in order to afford those big ticket expenses when they come. Putting away that money each month gives you that breathing room and means you’ll never have to scramble again.
Your Household Budget Helps You Identify Things You Waste Money On
When it’s all there in black and white in front of you… certain things are going to come glaring out at you. Have you been overspending in some areas?
It might make you reconsider whether you really want to spend well over $200 a month on Cable TV or $150 on your shiny new smartphone plan. Or how about that yearly subscription to something you no longer use or read?
Once you have a budget and all your expenses are laid out before you, go through it. Line by line.
Do you need it?
Do you use it?
Can you get it cheaper?
(and if in the position where you need to make cuts)
Can you live without it (even if only for the short term) until you get onto firmer financial footing?
It helps you reach your financial goals
Do you want to save for a holiday? So do I.
Have you made a plan for it though?
(Me neither. But I’m going to sort that out today!)
A goal without a plan is just a wish.
Having solid financial goals will help you stay on track with your budget even when temptation looms. Should you eat leftovers tonight or get a pizza delivered? If you’ve got a goal you’re working towards and a plan to get there, you can see in black and white where you’re stealing money from yourself.
It allows You To Be Proactive About Savings
Have you ever tried to save money… but found there was nothing left at the end of the month?
You go in with the best intentions at the start of the month, but it doesn’t work.
You need to pay yourself first.
A budget helps you make savings a priority. Set aside some money for savings at the start of every month, even if it’s just $20. Write it into your budget. Treat it like a regular expense as important as your other bills.
You could even consider opening a high interest savings account for it – it’s slightly less accessible but you get a higher interest rate.
It helps you prepare for emergencies
Most people live paycheck to paycheck.
That means that all that lies between most families and financial hardship is one month without a paycheck.
Having a budget can help you plan and save for emergencies. Building an emergency fund of 3-6 months of your daily living expenses will give you that security and stability you need to weather an emergency.
Ensures You’re Not Spending More Than You’re Making
Most importantly, your budget will keep you on track and help you make sure you’re not spending more than you’re making. And I don’t have to tell you that that’s pretty important for your financial wellbeing.
The Absolute Best Advice for Making A Budget That Works
One of the best books I ever read on personal finance was The Barefoot Investor. You can check it out here at Amazon online.
Now, the book is tailored to an Australian audience so some of the pages and pages of helpful tips on how to save money and get a better deal won’t necessarily apply but the core principles do.
My favorite thing was his budget allocations (and these are sort of similar to Dave Ramsey’s, so feel free to grab a copy of his book if you’d prefer).
- You should spend up to 60% of your income on your essential expenses, your bills and what it takes to run your life.
- Allocate 10% of your income each month to splurge on whatever you want.
- Allocate 10% to savings for future fun, like holidays.
- With the remaining 20% of your income, use that to pay down debt, save for a house, pay off your mortgage, and build a solid emergency fund.
I love these numbers because it’s easy to see if you’re on track, plus it gives you some spending money each month, guilt-free. When I go into savings mode, I tend to feel guilty over every purchase – even necessary ones.
How’s your budget?
So, how about you? Are you ready to get started on your own budget? Do it! You won’t regret taking this first step towards financial freedom.