In fact, according to a poll by Gallup, two-thirds of households do not have a budget.
I believe budgets are extremely important and that nearly everyone should have one. Rich, poor, middle-class, or whatever you are, a budget can most likely help improve your financial situation.
I've been asked several times why I have a budget and that I must have money problems since we track our cash flow and our spending. I've even had people offer to lend me money before when I have brought up anything relating to the word “budget.”
For some reason, there is a negative connotation attached to the word “budget.”
There's a myth out there that only people who are “bad” with money need a budget.
However, this couldn't be further from the truth. Considering that the average person saves no where near the amount needed to retire, creating a budget should be on more family's to-do lists.
Instead of thinking of a budget as something that holds you back, you should think of it as a tool to help you reach your goals.
To make things easier in this post, when I say “budget” I am talking about either tracking your spending, managing your cash flow, having a normal budget, etc. Basically, do you know where your money is going and how much money you are saving each month? If so, then to me you have a form of a budget. I realize that different things work for different people but if you don't know how to manage your money, then you need a budget that works for you!
Below are several reasons for why you need a budget.
1. Are you spending more than you make each month?
This is one of the big reasons for budgeting as obviously something is not going correctly.
These days it's so easy to spend more money than you make each month. This has to do with how easy it is to get into credit card debt and how easy it is to get approved for any type of loan (such as a car loan, financing plans, etc.).
If you are spending more money than you make each month and/or you are not saving any money, then you MUST create a budget.
You won't know what your problem is until you have a budget.
By having a budget, you can quickly see what needs to be changed. You will see your exact income that you are bringing in and your exact expenses each month. This will allow you to pinpoint what needs improvement so that you can stop living paycheck to paycheck.
Related article: Does your budget suck?
2. Do you have debt?
According to NerdWallet, the average household who carries debt in the United States has $15,611 in credit card debt and the average student loan debt is $32,264.
If this isn't a no-brainer when it comes to reasons for budgeting, then I don't know what is.
If you have debt then you should definitely create a budget. A budget can help you pay down your debt quicker so that you can stop paying high interest charges. Also, the relief of finally having your debt eliminated would feel amazing, right?
3. Do you have financial goals?
Having a budget helps you stay on track with your financial goals.
This is because without a budget, you might just spend money on whatever without thinking about how it may impact your goal progress.
There are many different financial goals in which a budget would help you reach it faster. The many reasons for preparing a budget may include financial goals such as:
- Retirement. Maybe even early retirement or financial independence? A budget can help you manage your money better so that you can reach retirement sooner.
- A vacation. When was the last time you took a vacation? Budgeting can help you spend your money more wisely so that you can save for a fun vacation.
- Debt payoff. Debt can be hard to overcome, but with a budget you may be able to breathe again. By having a budget, you may be able to find extra money to put towards your debt.
- Buying a home. A budget can help you save for a large purchase that you may have never thought was possible.
- Funding an emergency fund. Just like with all of the above, by budgeting you may be able to fully fund your emergency fund, which can help protect you in case a big expense comes up or if you lose your job.
Side note: I recommend you check out Personal Capital. Personal Capital is similar to Mint.com, but much better. Personal Capital allows you to aggregate your financial accounts so that you can easily see your financial situation. You can connect accounts such as your mortgage, bank accounts, credit card accounts, investment accounts, retirement accounts, and more, and it's FREE.
4. Do you know what you're spending your money on?
Without a budget and/or tracking your spending, you might be wasting your money on many things.
With a budget, you can see where your money is going, what expenses you should eliminate, and more. You might be able to find hundreds of dollars or even more in your budget each month. That can go a long way!
Do you have a budget, track your spending, and/or watch your cash flow? What are your reasons for budgeting?
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