If you want to succeed financially you need to make a budget. One that works for your personal needs and financial goals (learn how to set these goals here). No matter how much you try to save or cut back every month, unless you have an actual written budget you will not have a clear picture of your cash flow. You also won’t be able to track your expenses or financial targets properly.
If you don’t have an actual monthly budget yet don’t fret! Before I began educating myself financially, I did not have a budget. Miraculously, but with some major financial losses, I managed to survive my entire twenties without budgeting at all. However, once I faced the realities of being a single mother and having to make it work on a single income, I had to learn about budgeting really fast. Without a doubt, creating a budget was one of the most fundamental steps I took towards improving my financial health.
According to Investopedia (“Setting Up a Budget“), creating your personal budget will help you with the following:
- Make long- and short-term projections about your financial situation
- Avert a financial crisis
- Get the most from your money
- Plan for major life changes
- Achieve peace of mind
- Live the life you want
These are some general terms that capture the essence of good budgeting. Of course, “living the life you want” and “achieving peace of mind” might not be possible right away, but they are the ultimate goals you want to aim for. When you begin making a budget you need to remember that you are not doing it just to keep track of your expenses. You are essentially creating a roadmap to your financial success. Your goals might seem ambitious right now, but you’ll be surprised how much progress you can make with the right budget.
If you have a large debt, overwhelming expenses, and have no idea how to significantly improve your financial situation, you can do it with a budget. If you want to buy a car, your own home, or save for a vacation with your child, you also need a budget. Once you start tracking all sources of your income and expenses each month, you will discover money leaks that you might have missed before. You’ll also have a much better idea as to how much money you actually need to meet your financial goals.
A good budget will prevent you from engaging in poor financial habits and help you become debt-free sooner than you might imagine. For example, if you get a bonus or start paying less income tax each month (read how to do it here), you can use this extra money to pay off your debt faster. You can also choose to make a significant contribution to your savings account. Without a budget, most people simply spend any extra money they get, since the sum might seem insignificant to create a meaningful change. Yet, you can improve your financial health even with an extra $100 each month.
Perhaps the most daunting task in budgeting is comparing your actual income and expenses to your budget numbers at the end of each month. It requires a bit of work, but once you do it for a few months you will need to do it less frequently. Unless your income or monthly expenses change dramatically, your budget should not fluctuate much. By calculating the difference between your projected and actual numbers, you can investigate why there is a discrepancy. You can then brainstorm what you can do about it.
Once you make a budget, you can make easy habit adjustments to help you stick to it. Your budget should not make you feel guilty but rather empowered and well-informed. For easy tips to help you stick with a budget, check out this list of 32 budget hacks created by Lifehack. Try and see which of these habits produce the best results for you. Don’t worry if you cannot get them all right at all times. Small progress is better than none!
To summarize, I created this infographic on the benefits of making a budget. Feel free to share it with others who might not be convinced yet!
Are you ready to make a budget and would rather skip the hassle of starting from scratch? Download a free budget template to help you get started!