What Is a Budget and Why Do You Need One?

by Evan

For years you’ve overheard the word “Budget” in many conversations and know of its importance. If you’re not quite sure what a budget is and whether or not it’s something you need, read on below. 

The Purpose of a Budget 

In simple terms, a budget is a list of your accumulated debt and recurring expenses placed against your net income. In short, a budget lets you track your spending and helps you to make better financial decisions based on the findings. If your food bill is high, you’ll find ways to reduce it. If you spend a lot of money on frivolous items, you cut back.

Why Do I Need a Budget? 

You may ask yourself “Why do I need a budget?” The answer is easy. You need a budget to enjoy a comfortable lifestyle now and in your retirement. A budget is very revealing. It lets you focus on areas that need work, like maxed out credit cards and gives you a true understanding of where you spend your money. 

How Can I Benefit from a Budget? 

With a comprehensive listing of your recurring expenses and accumulated debt, you can start the process of reducing or eliminating some of your expenses and work towards paying down your debt. When you know the exact amount of income you have and have balanced that against the amount of your monthly debt, you’ll know the amount of money you have left over to work with. In some cases, people find out that they simply have more debt obligations than they have income. When this happens, you have two choices. You can either bring in more money or unload some of your expenses. If you have a mortgage and equity in your home you can refinance the loan or, if that’s not a possibility, there are installment loans online that offer small monthly repayments. 

How Do You Create a Budget? 

Creating a budget is easy. First, gather up all your bills. Then, you can either go old school and write them down on a sheet of paper, or download and print out a budgeting form from one of the many apps available for free online. Or, if you prefer, you can purchase budgeting software. There are several types of budgets from which to choose, with each having a variation in the percentage of money allocated to certain areas. It’s best to review a few before committing to one to see which one works best for you. 

The Short and Long-Term Benefits 

Once you start a budget you’ll begin to get smart with your money. You’ll know exactly the amount you have left at the end of each month. As a result, you will divide a portion of the net surplus into places such as a savings account, college fund, retirement, and a vacation. Putting steady amounts of money away each month helps you grow financial wealth and security. When a repair comes along, you have the money in place to cover it. When it’s time for children to go off to college, you have money set aside to assist with the fees. And, when you need to get away, you can book a trip to your desired destination. 

Credit Triumph 

When you stick to a budget, your bills get paid on time and your debt slowly dwindles away. A positive event occurs during this process: your credit score begins to move up each month until it levels off at an excellent score of beyond 800. Having stellar credit makes it easy to secure financing, lease a car or buy one at the lowest interest rates and have access to any cell phone or insurance company you want. 

A household budget is something everyone should have in place. It makes life easier and lets you enjoy the benefits of an excellent credit score and financial security in your retirement. 

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