There are several reasons why everybody should have a budget, but unfortunately most people don’t have one. In fact, less than 1 in 3 Americans actually keep a budget!
I believe that budgets are very important, whether you make $20,000 per year or $2,000,000 per year. Whatever your income level or spending habits, a budget can improve your financial situation and help you build The Four Pillars of Financial Success.
🕵️ Reason 1: A budget shows you the blind spots in your spending habits.
These days it’s so easy to spend more than you make. I believe that credit cards play a huge part in this. Don’t get me wrong — I have credit cards, and I love them for the rewards points they give me — but psychologically, it’s so easy to overspend when all you have to do is hand over to the clerk a little plastic card rather than cold hard cash.
And here’s the rub: you won’t know if you have a spending problem until you have a budget!
Or maybe you do know you have a spending problem, but you aren’t quite sure which particular spending category is at the root of it. But when you implement your budget, you can see exactly what you need to change and where are your key areas for improvement.
I personally use Personal Capital to electronically keep track of my income, expenses, assets, and liabilities so that you can see your spending habits and net worth over time. If you are not sure what net worth is, please read this article. If you would like to know why I chose to use Personal Capital rather than other similar software such as Mint.com, please read this article.
💸 Reason 2: A budget helps you pay down your debt quicker.
The average household who carries debt in the United States as over $15,000 of credit card debt, and the average student loan debt is over $32,000. Ouch!
If you have debt, then you definitely need to create a budget. Once you’ve been able to take care of the blind spots in your spending (Reason 1), you can commit more money to paying down your debt.
And by paying down your debt faster, you will pay less interest in the long run, allowing you to pay off your remaining debt even faster. See how cool budgeting is?
📈 Reason 3: A budget can help you set realistic financial goals.
If your monthly income is $3,000, and with your budget in place, you are able to keep your monthly expenses at $2,500, then you can save $500 per month. That’s great! Now you know exactly how much you can spend on a vacation this year while still being able to bump up your monthly retirement account contributions and paying down your student loans
Without a budget, you would have no idea what kind of financial goals you could achieve in the near future. But with a budget in place, you have an action plan, and you will likely reach your financial goals faster than you previously thought.
🏆 Don’t Settle for Average.
I love this quote: “Today I will do what others won’t so that tomorrow I can do what others can’t.” In fact, that quote is on the cover photo of Money Done Right’s Facebook page. Well, you know what 68% Americans aren’t doing today? Keeping a budget. If you’re a part of the 32% that does, you are well ahead of the game.