The Importance of Household Budgeting and Building a Savings
Everybody knows what a budget is. You write down everything you owe for a month and hope you have enough money to cover it all, right? Not exactly. A budget is a bit more involved. With a budget, you write down categories that include all your expenditures during the month. Include everything from mortgage or rent and utilities to incidental expenditures and entertainment. Determine how much income you have for the month, then you allow a certain amount for each category. It takes a bit of work to determine all the categories and how much to allot for each, but in the end you know that the important expenditures are taken care of and how much extra you have for incidentals and savings.
How a Household Budget Will Make it Easier to Save Money
When you have created a complete budget, you become more aware of where every penny you earn is going. This allows you to see where you may be over-spending and can cut costs. By including a category for “Saving”, you make sure a certain amount of money is put aside. This allows you to save up for larger purchases or things like vacations or retirement. By having all the figures written down, it is easier to see exactly what you have to work with. It is difficult to save money when you use a spend what you have policy and hope it all works out. Saving requires a plan of action that you actively work at.
Keeps You Focused on the End Goal
A budget helps you figure out your long-term goals and work towards them. For example, we all plan to retire sometime in the future. Very few people are able to live adequately on the pension they receive or on social security. Saving money for that time helps provide peace of mind.
On a more fun note, say you have a dream of traveling to Holland for the tulip festivals next spring or the following one. You can work out how much the entire trip is going to cost you and then you take that total and divide it by twelve months, or the number of months between now and the time you want to travel. This number will tell you exactly how much money you need to put away in savings each month in order to afford that vacation. By planning ahead, the trip is not only possible, but you also won’t have to allow important bills to go unpaid.
Avoid Spending Money You Don’t Have
We’ve all been there. We are tired one night and take the family out for dinner instead of eating at home or we see something on sale we really want and have the money in our account to cover it so we buy it. Sitting down to pay the monthly bills, however, we find that we are short on what we need because of that purchase or family dinner. Creating a budget can help you avoid that scenario.
With a budget, you know exactly how much “extra” you have to spend and if you have what appears to be more, you know that “extra” money actually has a purpose. Say you created your budget and know you only have thirty dollars left after everything is paid to spend on entertainment. You may have a chance to buy discounted concert tickets, but they come to forty dollars. Yes, you save money on the tickets, but you only have thirty dollars to spend without creating a cash shortage. You know you have to pass.
Helps You Track Bad Spending Habits
When creating a budget, you spend a week or two keeping track of every penny you spend. You write down that cup of coffee you stop by to get every morning, the vending machine snacks you like and how much gas you put in your vehicle. This gives you a picture of just how much those little purchases add up and allow you to make changes that save you money. For example, you can buy snacks in bulk and pack one each day rather than stopping by the vending machine. You’d be surprised at how quickly a daily cup of coffee from a take-out restaurant adds up.
Stay on Top of Bills
With a budget, you are able to plan ahead for paying all your bills. You know when each is due and how much money you need to pay that bill. Late fees add up quickly, and if you are often late, this can add up to a few hundred dollars each year.
Easy to Identify Unnecessary Spending
This goes back to that cup of coffee and those late fees. There may be other areas in your life where you are spending money you really don’t need to spend. Think about your clothing purchases. Chances are you didn’t need that last pair of shoes when you already have five pairs sitting in your closet. A budget actually makes you think twice before you make any purchase, which keeps you from impulse buying.
Benefits of Having a Household Budget
The benefits of having a budget are much greater than simply being able to save. Consider the following benefits:
Assists to Build Financial Position For a Better Retirement
You may be young and just starting your career but there will be a time when you are ready to reap the benefits of all that hard work. You may envision yourself living on a beach in Florida or traveling the world when you retire. This won’t be possible if you are barely getting by on social security or a small pension. Starting to save now will help make your post-career dreams a reality.
You’ll be Prepared for Emergencies
Furnaces have a tendency of breaking down when you most need them. Cars don’t last forever and neither do appliances. Over time, homeowners know that there are things that need fixing or replacing on a house. Medical emergencies can also cause a great deal of financial hardship. By preparing a budget, you can create a category for emergencies and place money in it every month. Then when that roof springs a leak or your kid decides to play Superman from the neighbor’s apple tree and ends up at the ER, you won’t have to struggle to pay your regular bills and pay the emergency-related ones. It will all be taken care of in advance.
Reduces Disagreements About Money
Sex and money are the two most common problems in marriages. Having a budget can’t help the sex issues but it can eliminate the disagreements that result around money. Both partners know exactly where the money is to be spent and know how much there is to spare for items they might want. You have solid facts when the kids argue that they simply HAVE to have a certain item. You will be able to state a fact and leave it at that, avoiding any arguments that might be in the making.
Teaches Your Children About Money Management
Your children will learn about money management in two ways. First, children learn more from what they watch you do than what you tell them. Seeing you taking care of necessary items first and limiting simple wants because it creates hardship will teach them the rewards of being able to cover living expenses and not have to suffer from lack of necessities. Secondly, you can put allowances for the kids into your budget. They will learn that if they spend their allowance all at once, they need to go without until next allowance day. They also learn how to save for larger items they want and how to determine if a purchase really is necessary. In the end, you will raise them to understand the thrill of saving for a much-wanted item.
You’ll Stop Living Paycheck to Paycheck
When you know how much money you need to cover basic living expenses, you will also learn where you can cut spending on frivolous things, giving you more money to play with over time. As you see your savings grow, you’ll be able to afford that special something from time to time and you’ll enjoy the benefits of being able to buy that special birthday gift for your spouse or attend that special event that only comes once in a lifetime.
You’ll Have Peace of Mind
Whether you are struggling to make ends meet now or are trying to plan for the future, having a budget in place allows you a peace of mind that is priceless. No longer will you have to worry that you might flip a light switch and remain in the dark because you forgot to pay the electric bill. You will be able to see a way for your child to attend college if they wish, and your dream of traveling the world may take on the excitement of an actual plan and no longer be just a dream. You’ll know you can get your vehicle or home repaired if something goes wrong. Having a budget will create a brand new relationship between you and money. It will no longer be something that creates arguments or stress. If you are new to the budget idea, it may seem restrictive at first, but you will find it is actually a vehicle of freedom. After all, don’t you have more important things you’d rather spend time thinking about?
Click Here to Speak With a Specialist