Yes. Here’s why:
- A budget prevents you from spending more money than you make and going into debt.
If you don’t have a plan for your money, then odds are you will spend most or all of it every month. If you don’t plan to set savings aside, then odds are you won’t. If you don’t have savings set aside, then odds are you will use credit cards for purchases and not be able to pay them off at the end of the month, resulting in debt. Odds are you will take the payment plan options for large purchases that you don’t have the cash for, usually resulting in a convenience fee (making the purchase price higher) and debt. Odds are you will take out auto loans, mortgages with less than 10% down, and other loans resulting in debt. Having a budget can help prevent you from going into debt.
- A budget can provide you with a plan to get out of debt if you already have it.
The majority of the population has debt of some kind, even if it is just a mortgage. If you are in debt, one of the best financial decisions you can make for yourself is to get out of debt. Maybe you don’t know where to start because you have three credit cards, an auto loan, and student loans and you don’t see a way out. A budget can show you where to start and shine a light at the end of the tunnel. Maybe you only have a mortgage, but you don’t know how it would be possible to pay it off early because you don’t have any money left over at the end of the month to put toward the mortgage. A budget can help you make cuts in your spending so that you can have some extra money at the end of the month.
- A budget allows for peace of mind.
Simply put, a budget is a plan for your money. I don’t know about you, but if I go into a situation without a plan, I am a nervous wreck. If I don’t know what I am going to do, I get nervous because then it feels as though I have no control over what happens. It’s the same with a budget. If you know exactly what your money is set aside for, then you feel more prepared to tackle whatever life throws at you. It lets you rest easy at night knowing that you will make it through tomorrow financially.
- A budget assists you in saving for large purchases.
The best way to buy anything is with cash. That is fairly easy to do with small purchases, such as groceries. But what about a car? Or even a house? Yes, it is possible to buy a house with cash. It takes a TON of discipline and a really long time, but it is possible. Paying cash for large purchases is the cheapest way to make those purchases. Why? Because you avoid paying interest! Paying interest is a waste of your net worth because you get nothing in return. With interest you are basically paying the bank a fee for them to lend you money. It’s a convenience fee. With a little bit of discipline and a working budget, you can avoid having to pay this convenience fee that really gets you nothing in return.
- A budget serves as a guide for when life happens.
Life will throw punches, guaranteed. When it does, you can adjust with a budget. Those punches that life throws will probably have a price tag attached in some way, shape, or form. Maybe it’s a price tag in that you become unemployed for an amount of time. Maybe it’s a literal price tag in the for of medical bills or auto repair bills. If you have a working budget and an emergency fund, the life-punch doesn’t hit quite as hard and it won’t knock you flat on your face. You will be able to adjust your spending habits and bounce back quicker than if you didn’t have a budget or an emergency fund. You can use your budget to guide you in making decisions on how to recover when unfortunate life events happen.
- A budget helps to set you up to have the retirement of your dreams.
Lastly, if you are living on a budget, then you can prepare for retirement so that you can live out the best years of your life the way that you want to. I am not personally counting on social security. I still have about 40 years before I can even think about starting to draw on social security. Do I think it will still be there when I am ready to draw? Maybe. But I am not going to count on it. I am going to prepare for the worst and hope for the best. I am going to save and invest now as if I know that social security will no longer exist when I am old enough to draw on it. That way, if it is available, then it is the cherry on top of my retirement. By budgeting and setting aside an amount of money each month, I will be able to retire regardless of what happens with social security.
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This is for educational purposes only and is not intended to be used as personal financial advice. I have not taken into consideration anyone specific situation. This is simply based on my opinions and how I personally handle my budget and finances. If you would like one-on-one personal budgeting advice, please click the Budget Coaching button below or contact me to set up a free consultation call. Also, if you haven’t already, sign up for my monthly newsletter! I will be sending out exclusive content each month and you will get a free budget guide as a thank you for signing up!
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