We all have dreams and we hope to reach some goals. If you live from day to day without paying attention to the unavoidable expenses and you don’t look forward to the future, you have no idea in which financial situation you will end. Making a budget will help you through this difficult process and maybe you can achieve your wildest dreams.
A budget is your financial guide which may improve your quality of life. You can consider a budget as a necessity in life which makes it possible to control your money and reflects your expected income and expenses. This makes it possible to see where you have to cut down expenses and find ways to increase your savings. It is a financial plan where you can interfere if you may going too far in the wrong direction and prevent not having enough money on the month left.
Here are some reasons why you should make a budget:
1. To meet your saving goals
Everyone needs to save for various reasons. You may want to buy a house, a new car or anything you like. A budget will help you to realize your goals and can be done by cutting down your expenses or to increase your income. Both factors are important to realize your goals. Some expenses may vary month to month and there are also expenses which you only need to pay once a year.
If you want to meet your saving goals you need a budget with your expected income and all your expected expenses. You know how much you need to save and you can check now which expenses you can cut. This is sometimes easier than you imagine; for example, everyone needs food to survive but it easy to cut down these expenses by making use of promotions, coupons and some rebates.
2. To plan for the future
We all need to save for retirement. A traditional pension doesn’t satisfy to pay all our bills and a budget allows planning how much money we can save in retirement plans. It is recommended to calculate how much you want to have in these accounts and a budget will help you to plan how much money you have to set aside every month and to transfer in IRA’s, 401(k) plans, pension funds or any other system which exist in your hometown.
3. To build a financial safety net.
We can’t predict what will happen in the future and we need a financial safety net for our unexpected expenses, for example medical expenses, repairs of household appliances, loss of job, car damage or any other expensive cost. Most everyone possesses a savings account from childhood and it is necessary to save every month a certain amount in this account for unexpected expenses. A budget can help us to build up our savings in this account and maybe it is best to withdraw automatic a fixed amount into this account.
4. To save for entertainment
People have different interests and maybe want to take a Caribbean Cruise vacation, touring the West coast of America or any other dream vacation. These holidays are expensive and a budget can allow you to make your dream vacation reality. Some people can budget such expenses in one year but if you can’t afford to set enough money aside every month, you can maybe budget these expenses for two years or even more.
Even if you want to make some shorter and less expensive trips, it is necessary to budget these expensive to avoid you don’t have the money when you have planned the trip. It is also possible you want to save for a home entertainment center, a high definition television, a digital SLR camera with expensive lenses, regular theatre visits or anything you like. A budget will help you to make this possible.
5. To invest
A budget makes is possible and probably your first step is a savings account. If you can set more money aside for long term goals, you can consider an investment strategy which can reach higher returns. Investing in mutual funds through systematic investment plans is an efficient way of investing and will limit the risk of losses. The advantage of this system is that you don’t always buy on peak prices and your return after ten years or more will likely be more than a savings account. These plans are useful for every investor and can be done for a limited amount, for example $25.00 each month and for any risk profile.
6. To get out of debt
Sometimes you need to take a loan for certain purchases, for example a house, an apartment, a car or any expensive purchase. Debt can be a high percentile of your income and maybe you are struggling to pay all the necessary expenses. We all need to pay for food, energy supplies, for example electricity, water, gas and some other necessities which we need in our daily life. Creating a budget can keep us out of debt or can help us to get out of debt.
There are several reasons why you should make a budget and maybe you don’t like it but you really need one; otherwise you may end so far in the wrong direction that you even can’t manage to pay all your bills. A budget allows us to interfere and make the necessary adaptations if necessary and to improve the quality of life. A budget can even improve your marriage or your relationship with the one you live together if you work together to create a realistic budget with arguments which will help you both to work together to reach common goals.