If you’ve ever wondered why you need a budget, the simple answer is: to protect your finances.
Creating a budget might seem time-consuming, but it’s time well spent since—in the end— it will benefit you financially. Read on to see our top reasons why you need a budget now!
A budget is a plan for allocating your funds over a specific timeframe. Your budget will serve as a financial roadmap to help make sure you're putting enough money aside to pay bills, build up savings, and have funds on hand to cover unexpected expenses.
While it might seem daunting at first, taking the time to create a budget—and follow it—is a critical step to financial security. Here’s why:
When you create a budget, you’re developing a plan to reach your financial goals, because you decide where the money goes and then spend it accordingly. For example, if you’re hoping to buy a house, a budget can force you to regularly set aside a certain amount of money every month that will ultimately become a down payment on that dream home someday.
With a budget, it’s important to commit to spending wisely and checking on how you’re doing month-to-month. This will help you determine where to tighten up a bit or where you might have a little more spending room.
When you don’t keep track of your finances, you’re more likely to overspend. Using a budget makes you think twice about spending since you’ve already allocated funds for specific purposes in advance. Therefore, you’re more likely to pause a minute before you spend!
If your financial situation changes or you have a sudden emergency, you’ll want to be prepared. If you’re already budgeting, you will have established a special fund for just these types of circumstances, so that they don’t become financially catastrophic. This “safety net” will also help reduce some of the stress around affording unexpected expenses!
Credit cards can be a slippery slope when it comes to overspending so be vigilant about monitoring them. You might want to create a separate category in your budget where you track and tally credit card purchases. Also, be sure to pay your bills on time since the interest rates alone can add up and significantly increase your debt.
If your employer contributes towards your 401(k) retirement savings, work this into your budget to maximize your income! Try to save around 10% of your monthly earnings for a retirement fund. A bonus tip: ask if your employer matches contributions in order to double the savings.
If you’re self-employed, budgeting your retirement savings with an IRA will be the best route because your contributions will be kept safe while earning interest until you retire.
Budgeting is an important tool to gain control of your finances, which ultimately will make you feel more secure about your spending choices. Online banking makes tracking your saving and spending habits very easy, which is extremely helpful when you’re following a budget.
JUMPSTART YOUR SAVINGS!
Now that you know why it’s important to have (and stick to!) a budget, it’s time to create one. Don’t worry, it’s not as overwhelming as you might think, especially with Foothill Credit Union’s resources to help you get started!
Click below for insightful tips on building your budget, along with other helpful information in our financial literacy resources.
