It is often asked, “Why should I budget?” The answer is: budgeting is very helpful and beneficial to you and your family. If excuses like, “It’s so boring” or “I don’t have time to budget,” resonate, here are five additional reasons budgeting can improve your life:
1. Reduce / Eliminate Debt
The number one reason given for making a budget is to reduce your overall debt and to eventually eliminate debt from your financial life, completely. Budgeting is a tool by which you take back control of your cash flow. You can remove the majority of your spontaneous spending by sampling planning how your money will be spent – before you spend it. Budgeting puts you in control of your finances.
2. Build Savings
Budgeting is not just for ridding debt. Once you have paid off all of your debt, you should continue to budget. First, you should direct your money toward relieving your debt burden. Then, you can direct it into savings and investments.
Once you get to this stage of budgeting, managing your budget actually becomes fun. Now, instead of watching your hard-earned money go toward paying off things you purchased in the past, you can now watch it money grow and build up for purchases that you will need to make in the future. With this in mind, budget 10 to 20 percent of your take-home pay to go to savings. It could be an IRA (Individual Retirement Account), a Certificate of Deposit (CD), or a Money Market Account (MMA).
Or, just save it in the bank and watch it pile up. Now, I know all of the savvy readers are thinking, “but you get terrible interest rates with a savings account.” That’s true – the amount of interest you can earn on a savings account is significantly less than other money vehicles. But, how many people can actually say they have $5,000, $10,000, or more sitting in a bank doing nothing? Not many. Remember, $5,000 in a savings account is worth more than $5,000 on a credit card bill.
3. Reduce Stress
Reducing stress is one of the best reasons to budget. Your level of stress over finances would be greatly reduced if you had $5,000, $10,000, or more in the bank. Admit it, when you read $10,000 in a savings account above, you were thinking you wished you had even a tenth of that saved. Surely you can picture, even feel, the sense of power and relief you would feel if you simply had some money just sitting in a bank account somewhere, waiting of the day you need it.
4. Actually Retire
The ultimate goal, for most people, is to get to a point where your money is working for you so you can work less. This is called retirement. When you budget, you can achieve this goal and retire, if you want. If you choose, you can continue to work even if it’s just part-time. The point is you don’t have to work. But if you never budget, when you want to retire, you may find you don’t have that option.
5. Help your children to help themselves
By budgeting and being good stewards of your money, you teach your children by example how to handle money. And, in turn, they will teach their kids. You can actually make an impact on multiple generations by simply budgeting and handling your money properly. It won’t require you to buy a huge estate, farm, or company. Your impact on future generations will be felt by how you behaved – not by what you bought. Now, that is a true legacy.
So go ahead – start budgeting, erase debt, and build wealth!
About the author: Shawn P. Dempsey is author of Erase Debt. He is known for helping people erase debt and live debt free.