Ask any financial expert what you have to do to control personal finances, and they’ll tell you the first step is creating a budget. For that matter, they’ll probably tell you that creating a budget is the first step in achieving your financial goals and financial success in general. If you’ve never created a budget before, you might be wondering
Why is Budgeting Important?
It’s a good question to ask. Why, exactly, is making a budget worth the tedium and work? What makes it such an important part of managing your finances?
A Budget Helps you see Where Your Money is Going
Believe it or not, everyone who earns money and spends it has a budget. When you actually write down where your money goes each month, though, you become aware of how you’re spending your money.
It’s hard to overstate how important this shift is. Instead of letting what you spend control where your money goes each month, you now control what you spend. This means you can:
- Determine just how much you want to spend in a particular budget category
- Get rid of budget categories that aren’t important to you
- Ensure that all your necessary bills are paid each month
- Figure out how much money you have available for a new expense, like a loan payment
It’s worth pointing out that this effect of budgeting is why a lot of modern financial experts are recommending that people call budgets their spending plans. You’re determining how much money you need to spend on what expenses, and you’re giving yourself kudos for making smart financial decisions each month.
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A Budget Stops you From Overspending
Ever since debit and credit cards became the main way to make payments, overspending has become more common. The best way to avoid this? Decide in advance how much you can afford to spend on each budget category.
For example, you might enjoy going to a restaurant for lunch every weekday. However, once you make a budget and realize how much you’re spending each month to eat out, you might decide you have better uses for that money.
A Budget Helps you Reach Your Financial Goals
One of the best reasons to call your budget a spending plan is that it makes you think about your money strategically. Once you’ve got your basic needs taken care of, you can start thinking about your financial goals, including:
- How much money you can put toward your goals
- Which goals are your highest priority
- How to save for multiple financial goals with different time frames
A Budget can Make you Debt-Free
While your debts won’t magically disappear once you’ve created a budget, it will help you figure out what extra money you can put towards your debts each month. A budget can even help you figure out where you can decrease spending temporarily, like clothing or entertainment, in order pay off your debts even faster.
A Budget Helps you Prepare for Emergencies
Everyone needs an emergency fund, but it’s an easy thing to ignore until an emergency appears. When you create a budget, though, you can factor money for an emergency fund into your monthly expenses. Eventually, you’ll have enough money saved up to handle most emergencies that may arise.
Even if you don’t have a lot of money saved up when an emergency hits, you’ll still be able to rely on that to get you through instead of having to rely on a loan or a credit card. As a result, you’ll have less debt and less stress. Speaking of which…
A Budget Lowers Your Stress Level
Once you’ve made your budget, you no longer have to wonder where your money is going each month. You also don’t have to worry about overspending, and you’ll also know what progress your making towards your financial goals. In other words, you’ve just freed your mind from a lot of uncertainty and stress.
When you create a budget and stick to it, it’s almost impossible not to feel relieved, and why wouldn’t you? You’re no longer a prisoner of the vagueness and your own impulses. You’re the captain of your own ship, and you’ve plotted your course and prepared for any difficulties ahead.
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Create a Budget with First Alliance Credit Union
A budget is the cornerstone of financial success. It puts you in control of your money, helps you plan for the future and guard yourself against emergencies, and it even reduces the stress in your life.
If you’d like to get these advantages for yourself, become a member of First Alliance Credit Union today. Of course, you don’t need to be a member to download our free budgeting guide or our SMART goals packet, but when you become a member you get access to our online banking account and mobile app, which contains the My Money feature. This will help you figure out where you’ve spent your money, help you create a budget and even make sure you’re following it each month.