We work hard to earn a living. We should make sure that we spend the money we bring home wisely. This is where a household budget comes into play. It’s a good tool to see immediately what we’re bringing in, what we’re spending (and what that money is being spent on), and whether there’s anything left to save at the end of the month.
Before we get into what exactly a budget can do for us, let’s briefly consider what happens when we don’t keep track of our income and expenses. We may end up spending more than we take in during a given month (or two or three). Over time, this can put us in quite a financial bind. We may also spend a lot more than we’d like, for example, on restaurant meals, trips to the movies, or new clothes.
With a budget, we have more control over what we really want to spend our hard-earned money on. Maybe that’s dinner and a trip to the movies, maybe it’s not. Wouldn’t it be nice to have a real choice?
It shows where your money is going
A budget simply records your money. You record where the money comes from each month (your income), and then write down everything you spend it on, starting with regular monthly bills like mortgage or rent, car repairs, utility bills, etc. What’s left after all the bills are paid is your discretionary income.
Helps you realize what you’re wasting money on
When you have everything in black and white in front of you, you can see what you are wasting your money on.
So, you can consider whether you really want to spend more than $200 a month on cable TV or $150 on your big cell phone plan. Or how about that annual magazine subscription for something you no longer read? Go through your expenses and rethink whether this is how you really want to spend your paycheck.
Allows you to save proactively
Without a budget, it’s hard to save money. We have the best intentions at the beginning of the month, but somehow there’s nothing left at the end of the month.
A budget gives you the opportunity to be a little more proactive. Set aside some money to save at the beginning of the month, even if it’s just $20. Enter that amount into the budget as a regular expense, just as you do with your other urgent bills. Open a separate savings account if needed so you won’t be tempted to spend the money.
Makes sure you’re not spending more than you’re taking in
Most importantly, your budget should keep you on track and help you not spend more than you take in. And I don’t have to tell you that this is very important to your financial well-being.
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