Budgeting can be overwhelming at first, but it’s actually not as difficult as it seems, and once you get the hang of it, you’ll find that it becomes second nature. But why should you bother with budgeting at all? Because, believe it or not, budgeting can do more than help you track your spending and plan your finances—it can actually make your life easier and more organized in ways you may not even realize.
What is budgeting?
In short, budgeting is a way to help you use your money wisely. To create a budget, you need to decide where your money should go and how much of each type of spending should be included in your plan. You can then track where all of your money goes each month, making sure that what you planned to spend on certain categories matches up with what you actually spent. It’s not a silver bullet by any means, but taking time out of every month to think about how you can spend less on things like dining out or entertainment will help keep more cash available for emergencies or better long-term investments. Without budgeting, everyone would have a hard time keeping track of their finances—and some people wouldn’t even bother doing so in the first place!
How to start budgeting
So how do you start budgeting? The first step is to know why you're budgeting. If your goal is to pay off debt or save for a down payment on a house, for example, then you'll want to focus on cutting out all unnecessary expenses that don't contribute toward that end. On the other hand, if your goal is simply to track how much money comes in versus how much goes out each month, that's something anyone can accomplish by logging onto his or her bank account once a week. Either way, starting with small goals and keeping those goals in mind throughout each day will help you stick with your budget when times get tough. Even saving $20 per month can make a huge difference over time!
How to create a budget
It’s impossible to budget if you don’t have an idea of what you earn. Whether you are a salaried employee or run your own company, there are online tools that can help. Some sites allow users to create a simple budget by entering income and expenses, while others take things one step further and recommend ways to free up cash flow—for example, by lowering credit card interest rates. If all that sounds too complicated, try these four tips: Get in control of your spending; track where your money goes using software like Quicken or Mint; set realistic financial goals; make a budget—and stick to it!
The importance of budgeting
Budgeting can be tough. It requires that you make a plan, sticks to that plan, and be self-aware enough to know when you’re deviating from your goals. But there are a few things in life more important than understanding your budget: knowing where all of your money goes helps you feel confident about spending choices and reduces financial stress over time. Whether or not you’re aiming for a frugal lifestyle or aim to get out of debt as fast as possible, budgeting makes every dollar count.
Benefits of budgeting
When used properly, budgeting helps us with things like staying on track to meeting our financial goals. In other words, budgeting can help you save for vacations, weddings, retirement—even emergency situations. That’s one of its greatest benefits: The peace of mind that comes from knowing that you have a financial plan in place. Many people think they don’t need a budget because they’re comfortable living paycheck to paycheck or maybe they want to keep their finances as flexible as possible. But if you choose not to create a budget, chances are high that it will happen anyway because your income isn’t matching your expenses.
Example of how budgeting makes sense
Put simply, budgeting means creating a plan that determines where your money will go each month. It’s not as time-consuming or daunting as it sounds. For example, instead of mindlessly throwing all your cash into your checking account at the end of each pay period, set up automatic transfers for bills, savings goals, and spending accounts. This simple process can save you from making financial mistakes that can cost you in ways you never imagined – from identity theft to interest charges on credit card debt. The benefits are pretty clear: You don’t have to sit down once a month with bank statements in hand to figure out where all your money went; you can just look at how much is left in each account when you review your budget at month's end.
Conclusion
The best way to create a budget that works for you is to start tracking your spending. What are you currently spending your money on, each month, in categories such as cell phone or dining out? Where could you possibly save? And once you do get serious about saving, stick with a budget—it really does work. For more information about creating a budget that fits your needs, check out these three steps to creating a personal budget.
