Do you have a job? Do you have bills? Things you want to buy in the future? BOOM! Three reasons you should budget.
In today’s world, the concept of a personal budget has taken a backseat to the other chaotic and stressful events in our lives. This has led many individuals and families into financial difficulties for a few main reasons:
consistently living above/beyond their means
credit card debt
large car loans
Credit card debt, personal, and large car loans are not bad to have, in general, but they can have dire effects if not managed and budgeted for properly. For instance, using a credit card to pay for travel, groceries, and clothing may not be frivolous spending if planned out appropriately. Let’s say you have a known expense coming up such as a vacation or back to school shopping, using a credit card to earn points or miles for these planned expenses can be a savvy way to leverage your spending for future benefits.
On the other hand, if you are in the mall with friends and happen to come across an advertisement for the latest gadget, DON'T swipe your credit card simply because you have to have it. That is not the smartest way to earn points or leverage your earned income. Unfortunately, the spontaneous purchase is considered the norm in today’s world. YOU ARE NOT ALONE. We all might do it, but we need to limit the amount we spend, as well as the frequency in which we spontaneously swipe.
Utilizing a budget can prevent situations like this from occurring while at the same time providing you with a sense of empowerment over your hard earned income. A lot of our income remains unseen. We do a job and then in two weeks time, an amount of almost imaginary money is deposited into your bank account. Once we have the money in our account, we don't think about how long it took us to earn it. My wife is a teacher and makes about $46,000 a year. Roughly $3200. So for every minute she works, she makes roughly $1.30.
As Dave Ramsey loves to say, “utilizing a budget allows you to tell every dollar you earned where to go.” I read it in his book, Total Money Makeover. Having this oversight of your earned income can do wonders for your financial health and outlook. We have helped individuals realize routine expenses like their monthly coffee expenses were higher than their car note!
Without the use of a budget routine coffee trips can become a habit which drains our income without realizing it. For example, one cup of coffee before work at $5 multiplied by 20-22 working days per month equals $100-$110; now add an ‘afternoon pick me up’ a few times a week and now the total could approach $150+. Then on top of that include purchasing breakfast, lunch, and sometimes dinner several times per month, yikes!
Now, it is not to say you shouldn’t enjoy a cup of joe occasionally, but this example highlights how having a budget can help you to maintain a reasonable coffee purchasing habit. With the use of a budget, you can challenge yourself to spend only $50-$60 per month on coffee and/or another $50 on purchasing meals while out. Using budgets in this instance can help you save a minimum of $50 per month on use coffee/takeout meals ($600 per year!!).
Applying this technique to other monthly expenses can reduce expenditures by a significant amount. In addition, to limiting coffee and takeout orders, analyzing cable, cell phone, subscription, electric, gas, car, mortgage, gym, going out, and other expenses can help put large amounts of cash back in your pocket. These extra funds can be used for other things like paying down debt, saving for kids college, saving for retirement, vacations, virtually anything! Stick around for future posts about how to budget and find ways to put hundreds of dollars back into your pocket without diminishing quality of life.