A 2021 survey by Debt.com revealed that 8 out of 10 Americans (or 80% of Americans) budget their income, a 12% increase from 2019. As times get tougher, more and more people are adopting financially prudent habits, with budgeting being one of them.
Budgeting allows you to prioritize your spending, cut unnecessary expenses, and save towards a specific goal. Although financial planning is integral to most New Year’s resolutions, no financial plan is complete without a detailed budget.
Today’s post will highlight why a budget in your financial plan is an absolute must. Without wasting much time, let’s dive straight into it.
What Is Budgeting?
A budget is a written or well-documented plan for your expected income and future spending. A budget allows you to balance your income, savings, spending, and financial goals over a specific period. It helps you estimate how much money you’ll make and how much you’ll spend within a certain period.
The traditional form of budgeting is the pen-and-paper method. This involves listing all expenditures (sometimes in categories) and reconciling them with your income. The surplus either goes into your savings or toward a larger financial goal.
People can now budget using their PCs and smartphones thanks to modern technology. Spreadsheets work well for the former, while the latter employs various budgeting apps for accurate and convenient budgeting. Different budgeting techniques work best for different people, so find what works for you and roll with it!
Why Is a Budget an Important Part of Your Financial Planning?
A budget is imperative for proper financial organization and brings you closer to your short- and long-term financial goals. Here are a few reasons a budget is integral to a proper financial plan.
Improves Credit and Debt Management
More than 64 million Americans are currently drowning in debt. If you’re one of them, a budget could help you escape the debt cycle of borrowing to repay one debt and borrowing another to get by. You may max out your credit card on impulse purchases without a budget. A budget helps limit spending so you can maintain a good credit score and escape the vicious debt cycle.
Brings You Closer to Your Financial Goals
A budget helps you achieve both short and long-term financial goals. You have to crunch the numbers and see where to cut down your spending to help you achieve your specific goals. A budget will help you do that without compromising your quality of life.
Increases Your Savings
Saving for a rainy day is especially important in these unpredictable times. Without a concrete budget, it’s easy to overspend income on trivialities and remain with nothing at the end of the month. A budget helps you save for emergencies or a larger purchase.
Tips for Creating a Proper Budget
Are you looking to start budgeting in the new year? If so, here are a couple of tips to get you on the right track.
- Budget to zero at the start of every month. You need to account for every dollar at the start of every month and leave nothing to chance. This doesn’t mean you should have nothing by the end of the month. It means you’ll budget for everything, including what you have left over at the end of the month.
- Prioritize the important stuff. Make sure you have the important stuff down pat first before proceeding with the rest of your budget. These bills may include utility bills, food, transport, and the rest. Later, you can budget for luxuries like subscription services, dining out, and travel.
- Pay off your debt. The longer you take to pay off your debt, the more you’ll pay. Include debt repayment in your budget to start with a clean slate. You can also try strategies like debt consolidation to pay off large, costly debts first, then smaller, more manageable debts later on.
- Trim your budget whenever necessary. If your budget is straining your pockets, don’t be afraid to trim it down. Reduce outside dining, drop cable TV, and take the bus to cut your spending and trim your budget appropriately.
No Budget, No Financial Plan
Failing to include a budget in your financial plan is like not having one in the first place. Include a budget in your financial plan and achieve your financial goals this year. With plenty of budgeting apps available today, creating your budget should be a breeze.
Remember, budgeting is just part of the equation. Implementing the budget is the crux of the matter. Create your budget today and stick to it for a prosperous financial life. Contact us today to learn more about tax and retirement planning to secure your future.