Budgets and Money

Understanding How a Budget Helps

Having a budget doesn't have to be a bad thing. It can be helpful in avoiding a financial crisis and help you plan ahead for major life events as well as reach a nice financial goal.

What Is A Budget and What Can It Help Me With?

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 often evoke negative connotations about where you may be in your financial cash flow.

But being on a budget isn't a bad thing, nor does it mean that your finances are in circling the drain. A budget can be useful for 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 rather pleasant 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.

Sources include:
1. http://www.investopedia.com/university/budgeting/basics1.asp
2. http://www.bankrate.com/finance/financial-literacy/secrets-to-creating-a-budget-1.aspx

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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective Life or its subsidiaries.

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