At some point in your life, you probably have heard about the importance of developing a budget. But why is a budget so important? Perhaps you simply spend what you must and save whatever is left over. Or perhaps you spend all you have and borrow or charge anything else that you need. In either case, given the limits of your income, you may have wondered, “What good would it do to have a budget?”
Whether you have substantial resources or live close to your means, a budget can serve as an effective foundation for a savings program. It may be one of the best tools to help you control your personal and household expenses, thereby freeing up income that you can redirect toward savings.
How does a budget help you accomplish this?
Consider the following four points:
Putting your actual expenses down on paper helps you see “where” your money is going. This mental vs actual account can help you conserve your financial resources or spend them more wisely.
A budget can help you to anticipate financial problems that could arise from your present spending habits, thus allowing you to change course before you are faced with additional difficulties.
A budget can help you recognize the need for an alternative course of action to achieve your financial goals.
Finally, a budget can help you evaluate your progress toward meeting your long-range financial objectives. Whether you dream of higher education for a child, an early retirement, or a special family vacation, a budget can help boost your savings and bring your dreams closer to reality.
Aren’t sure how to start budgeting? Watch our video “budgeting 101” to learn how.