How many times have you heard someone say that they couldn't buy or do something because they were broke and on a budget? Unfortunately, many people feel that budgets are something you do with your money when you're running low on cash. In fact, the mere mention of the word "budget" can evoke negative connotations about your current financial situation.
But being on a budget isn't a bad thing, nor does it mean that you are in financial trouble. A budget can be useful by just about everyone and can actually help you avoid a financial crisis, plan ahead for major life changes, make financial projections, and even reach some of your financial goals.
What is a budget?
A budget is a way of tracking your income and expenses so that you don't spend more than you have, and can save more. When you know where your money is going, you can make educated decisions about how best to allocate your money to things such as paying off debt, retirement and savings accounts. Basically, a budget can help you get the most out of your hard-earned dollars.
What a budget can do for you
According to Investopedia.com, a budget can help you by:
- Preventing a crisis
If you had an emergency situation and needed cash, would you have enough set aside to cover the expense? A budget can help you build an emergency fund so that when the unexpected happens, you won't be blindsided.
- Planning for major changes
Having a budget allows you to see at-a-glance whether or not you can afford to make changes in your life that could substantially affect your finances. For example, if you and your spouse have been getting by with one car for years and are now considering a second family vehicle, not only will your budget tell you if you can afford the extra expense, but how much you can manage in monthly payments.
- Make long- and short-term projections
If you've been trying to save for retirement, start a college fund for a child, or just put away more money in the bank for a long overdue vacation, a budget can help you identify how much money can be allocated where, and when. For example, if you your goal is to bolster your 401(k), a budget can help you see how close you are to paying of a particular debt - such as a car loan. If in six-months you'll have your loan paid off, then you can plan on allocating that extra money in six-months toward your 401(k) account
For more information on how to make a budget as well as the benefits of budgeting, visit the Protective Learning Center.