Do you really need a budget?
Even if you aren’t in financial distress, you should set a budget and work to live within it each month. Doing so can give you true, enduring control of your finances. It can also help you avoid unforeseen financial hazards, and position you to take advantage of fleeting opportunities.
Are you still not convinced? Well, here are six reasons you definitely need a budget, no matter what kind of money situation you’re in.
1. Prepare for the Unexpected
One of the most important reasons you should set a budget is to ensure you’re ready when disaster strikes (and it will). You may be financially secure right now, but what would happen if you suddenly lost your job, or were faced with a major unforeseen expense? Would your casual money management system allow you to get through one of these events unscathed? A budget can help you ensure you’re saving enough money each month to prepare for the unexpected. After you create a budget, you may even discover you have additional funds you can use to mitigate serious incidents further, by buying more insurance or making home improvements, for example.
2. Achieve Your Goals
Nearly anything worthwhile you intend to do in life requires money. Whether you intend to go back to school, purchase a home, launch your own business, or start a family, you’ll need cash on hand to get things moving. Additionally, you’ll figure out how to raise all the cash required much faster if you have a budget. A budget can help you determine how much you need to save each month to reach your goals. It may also enable you to determine ways to cut current expenses, so you can reach your goals even faster.
3. Take Control
You work hard for your money; if you don’t have a budget, you’re leaving all that hard work to chance. A budget will give you a better understanding of how you’re spending your money. You’ll be able to see where you have opportunities to cut unnecessary expenditures and invest for the future. You may even realize that you have enough money to do more of the things you enjoy. Greater awareness of your spending and saving activity will give you greater control over your finances. Over the long term, more control over your money will give you greater peace of mind.
4. Increase Your Flexibility
Having a budget can also help you roll with the punches. While managing your money may be easy right now, as time goes on, changes will almost certainly complicate your finances. You may buy a new home or car in the future, get married, or have a child. Each of these life changes will have a major impact on your finances. If you have a budget, you can forecast exactly how these changes will affect your finances; in many cases, you can mitigate any negative effects by saving more or reducing some non-essential expenses. Having a budget may even help you determine that making one of these major life changes isn’t feasible right now, allowing you to prepare for a time when you can afford it.
5. Get Better Faster
Most people have bad spending habits that inadvertently cause them to waste more money than they realize. Dining out for lunch five times each week adds up at the end of the month, just like all those premium cable channels you might have signed up for over the years. Reviewing your budget will help you examine your good and bad spending habits. This will help you reinforce the good things that you’re doing with money, and help you root out habits that must change if you want to stop wasting hard-earned cash.
6. Keep Your Credit Healthy
Paying bills on time and managing debt are critical to maintaining a good credit rating. In fact, your overall payment history accounts for over 30% of your overall credit score. A budget can be an integral part of this. A key part of keeping track of your money is paying your bills each month. If you get in the habit of tracking all your major bills and payments as part of your budgeting effort, you’ll stand less of a chance of forgetting to pay one of them. This will help decrease the likelihood of a late payment being reported to a credit bureau, thereby tanking your credit score.
Even if you’re financially secure right now, you still need a budget. Budgeting your money will increase your financial flexibility and help you prepare for the future. It can even help you limit the damages that unexpected financial disasters often cause, too. What are you waiting for? Sit down, put a pen to paper, and draft your own budget!