For a lot of people, creating a budget can seem daunting or unnecessary. However, budgeting your money will save you time and financial frustration. When you use a budget, you have control over your finances.
Budgeting is the process of creating a prioritized plan for the direction of your money. If you don’t know where your money is going, you are either going to feel broke, be taken advantage of and will probably end up in severe debt (if you aren’t already.)
Here’s the good news… creating a budget can be very simple and even dare I say… fun?
Tip: When you are just starting out, using a pre-made planner will make your life much easier. Creating one from scratch is overwhelming. If you need a free budget planner, we have created “The Perfect Budgeting Planner.” It’s in our resource library and you can get the password below. The planner will help you gain control over your finances in no time. Bonus: it also comes with a ‘how-to’ video to help you get started.
Why you should be budgeting your money
I saw a meme on Facebook the other day that said, “What does it take to waste $10,000 a year? Just $27.40 per day in miscellaneous spending.”
That meme really made me think, and it should make you think, too. For most of us, $27.40 a day is easy to spend each day. After all, People easily spend that impulse buying at the store, going out to lunch, and getting those random snacks from the vending machine at work each day.
If you do not take control of what is happening with your money, your money will leave you. It’s not uncommon for people to actually spend over or close to their monthly income on just random stuff.
Take a look at your surroundings right now and think about the items in your home. All those things were once money. Furthermore, how much ‘stuff’ do you have sitting around that you wish you could trade back in for the money you originally paid for it?
This nasty habit of not budgeting will quickly lead you into financial insecurity! Below, you’ll find some reasons why you should create and stick to a budget.
1. Budgeting your money helps you set financial goals
When you create a budget, you get to see the past, present, and future of your financial health. This makes goal setting much easier.
For example, you may see that your retirement savings are lower than what they should be. This isn’t good! You need to move retirement to the top of your priorities. To do this, you may decide to automatically distribute money from earnings to an IRA or 401K. Then, decide where the rest of your money should go.
Likewise, other goals could be saving for your kid’s college, paying off debt, or even saving for home improvement.
2. Builds Your Credit Score
Understanding where your money is going can boost your credit score. How? Because you are more likely to pay your bills on time.
As a result, banks more likely to give you a low-interest rate in the event that you want to refinance or need a loan. Additionally, if you have bad credit, you may not even get approved for a loan.
When you budget your money properly you will be able to make your monthly payments on time.
This is easily accomplishable. That’s why we created, “The Perfect Budgeting Planner.” It puts you in charge of your life. You get to improve your financial health and have added benefits like a great credit score.
3. Relieves Stress
Year after year, one of the most common reasons for divorce is money problems. This should be a wake-up call to anyone who is married. When both spouses are following a budget, money arguments are greatly reduced.
Not only will everyone know what is happing with the money but they will also have the same goals.
Even if you aren’t married, budgeting your money will relieve stress. Single people struggle with finances, too. In fact, single people don’t have the added benefit of someone else to hold them accountable.
Stress, especially financial stress, can lead to a high rate of divorce, mental illness, and even physical health conditions. Simply put, using a budget takes the “what ifs?” out of your mind.
How to start budgeting your money
The first step to taking control of your budget is to get educated and organized about your finances. Realize that only you can control your financial health.
1. Know your income
First, gather your pay stubs and any other financial income documents. Also, gather information about any income-generating investments you have.
2. Know your debt
Second, find out your total debt and your monthly payments. If you have a lot of debt, this may take some patience. The trick here is to write down a list of your bills, and then write down your payments and total amount owed one by one.
If you are using “The Perfect Budgeting Planner” we made available in our resource library, you will see that we already listed the most common income and debt that people have; so you can just scan the list and fill in your numbers.
3. Enter your income and debt into a spreadsheet
Again, if you are not using our free, downloadable budget, you will need to create one of your own.
When you create your budget, you will want to make sure it has the following:
- Total income
- Expense Total
- Total debt
- Each creditor or company you owe as well as the monthly payment
- Anything else that personally applies to you
4. Start telling your money where to go
You will almost always have to make adjustments when you first create your budget. That’s because up to this point you have only recorded your numbers, you’ve not created a plan.
When most people start a budget they find that they don’t have much leftover after all of their bills are paid. In order to have more money leftover, you will need to devise a plan.
For example, let’s refer to the retirement fund again. Let’s say you want to contribute an extra $100 into your IRA. Looking at your budget you may be able to contribute an extra $100 to your IRA if you switch from cable to a cheap streaming service.
Furthermore, if you are trying to pay off debt or invest more money, you may want to cut out as many unnecessary expenses as you can to reach those goals. If you need some help or ideas on how to reduce your bills, we have an awesome document called, “The Essential Money Saving Checklist” in our resource library with tons of tips. It is free to download.
A quick pep talk if your finances make you cry:
You must take a step back, look at your expenses, and then begin to decide on the things that you need and the things that you want. If your budget calls for it, live a life of frugality.
You may need to get rid of the cable, began couponing, shop second hand, etc. There is nothing wrong with that. In fact, you might not even miss the everyday luxuries. You might find that you like the luxury of not being a slave to debt more!
The power of being able to feel comfortable by budgeting your money and not having to worry about paying that next bill is empowering to the mind.
Budgeting your money is the start of your financial success. Take control of your future today!
Download “The Perfect Budgeting Planner + How to Video,” FREE from our resource library now to start your journey to financial independence!
P.S. If you want to join others on the journey to financial independence, join our new Family and FI Facebook group.