All too often, people with good jobs and healthy bank accounts eschew the task of creating a household budget. They assume budgets are for the financially struggling who need to count their pennies to avoid bankruptcy or worse. Yet you can not plan for the future based on such assumptions. For anyone with goals - even if the goal is simple survival -saving, investing and proportional spending must be evaluated one against the other on a regular basis. This is only possible by creating and living according to a reasonable and responsible budget. The good news is that putting one together is easier than you might think.
1. Planning for the Unexpected
Without keeping some long-term aims in mind, the budget-less individual will spend on anything that raises dopamine levels. This, of course, is a good way to end up impoverished. Ask the questions: how long will I live if I remain in good health? Will I be able to afford to put the kids through college? What about health emergencies? Or layoffs. Until you can reasonably estimate how much these contingencies might cost - and what you need to do to obtain the money now - you are flying blind financially. So, if saving is a necessity for both long-range goals and unexpected emergencies, you need to regulate spending with a budget .
2. Minimizes Debt in Your Life
When you fail to budget your own money, other people's money becomes all the more tempting. Credit cards, installment loans, cash-out refinances and other outstanding balances are dangerous when they are used in place of earned income or interest-bearing assets. To be sure, each can be of benefit in the context of a sound financial plan. Without a budget, however, many borrowers drown in a sea of debt. Some even have to declare bankruptcy. Managing money according to documented income and expenses keeps people from overextending themselves with borrowed funds. This ensured financial peace of mind.
3. Reveals Poor Spending Practices
Getting it all down on paper might just expose a lack of discipline or poor judgment with regard to expenditures. While this revelation might be painful to accept, it is also a much-needed alarm. It demonstrates the urgency to make changes in how you manage your money. Without it, you might go on making costly errors. A budget shows us how much a daily designer coffee costs us when totaled each month; how much new clothes pull from our bank account; and the real cost of that long weekend in Punta Cana. When we see the actual spending laid bare before us, we have the incentive to economize. Often, the sacrifices are modest in discomfort but great in wealth-building.
4. Retirement: Longer than You Think
It is a fact that 15 percent of Americans have nothing saved for retirement . These are baby boomers and Gen-Xers, not 20-somethings. Their productive years are waning and they are unprepared for the day when they can no longer work. Since most seasoned financial advisors are recommending at least $1,000,000 be socked away, even those with 100K in their retirement accounts are left in a scary situation. Putting enough into interest-bearing retirement accounts and other safe financial instruments is essential because we are all living longer, extending the post-career years. A budget is key to building up the substantial nest egg you will need.
5. Reduces Anxiety
Noted above is the fact that creating a budget awakens us to bad habits and little-noticed hemorrhages. Corrective action is never pleasant but it does have a positive side-effect. When spending is lined up with revenue we tend to worry less. How many people credit financial woes for their insomnia. How many are anxious about the next month's bills because they have insufficient money to pay them. A sound budget - if adhered to - takes these tormenting concerns away, allowing you to get the sleep you need and better enjoy the waking hours.
The task of preparing a budget may be daunting, even frightening. It does not have to be so. Putting together a budget can be tailored to your goals , temperament and financial situation. The biggest challenge is in getting started.
