When we think of the term “budget” we think about “restrictions” and “hassles.” The truth is, while budgets do take time and commitment, they can actually provide you greater freedom and fewer headaches.
Having a budget that fits your needs and is flexible over time can help you achieve your financial goals – the short-term, the long-term, and the unexpected. Here are six ways a budget can help you.
- Budgeting Helps Reduce Stress
Higher stress means less sleep and more health issues. Most financial worry comes from not knowing where you money is going or if you have enough. When you have a plan for where your money is being spent, you are in control of your money – not the other way around. - It Helps You be Prepared for the Unexpected
The unexpected is going to come up, and the best way to be prepared for it is to have an emergency savings. Typically, a good safety net consists of 3 – 6 months’ worth of living expenses. According to the National Financial Capability Study from FINRA, only 46% of Americans have set aside savings in case of an emergency. When the unexpected arises and we do not have a savings reserve to draw on, most will turn to credit cards or other debt to meet the unexpected expense.You can build into your budget an allocated amount each month to save that works for you. Decide what you can save each month without making your pocket too tight, and you will quickly see the savings grow and be motivated to keep it up. - It Helps Identify Your Spending Leaks
When you have a budget, you are seeing what your spending trends are, and you are forced to take a look at your spending habits. Common spending leaks that many of us have and don’t realize are little gold mines of potential savings if we were to cut back.
For instance:
- Eating out every day for lunch vs. brown bagging it during the work week can cost $30-$60 each week, amounting to over $3,000 spent in one year on lunch alone.
- Grabbing a soda and a snack from the vending machine five days a week can cost $10-$20 each week. That translates to $1,000 each year.
- Each trip to the movies can cost an addition $10-$15 per person if snacks are purchased at the theater. Eating at home first can help you avoid the temptation and help you save on an unnecessary expense. - It Puts You in the Driver’s Seat
When you create a budget, you are deciding up front how much you will spend in each spending category each month. The key here is you get to decide. You get to determine how to spend your money. If being able to backpack to Europe next year is something is important to you, you can build that savings into you budget without feeling guilty about it. As long as you are meeting your other financial needs, you get to decide how much of your income can go towards meeting that dream. Budgeting is not about limiting yourself: it’s about finding the opportunities to reach your goals. - It Helps You Keep Your Eye on the Prize
Once you’ve decided what your financial goals are, your budget will help you stay focused. With your goals mapped out and your savings and spending plans in place, you’ll be more focused on what you’re trying to achieve and less likely to drift from unplanned purchase to unplanned purchase. When the temptation next hits to snag the cute pair of shoes, you’ll remember what’s more important to you and it’ll be much easier to walk away. - It Helps You Be Flexible
Budgets can, and should, change over time. Your wants, needs, and income change, so why shouldn’t your budget? As you evaluate your planned budget against your actual earnings and expenses for the month, identify if tweaks need to be made. Additionally, if you do find yourself wanting to buy something outside of your budgeted categories this month, you can choose to reduce another spending category so that you can buy that unexpected item without breaking your budget. The idea is to keep your goals and values align.
Quick Tips:
- Dedicate some time to sitting down and assessing your personal financial situation.
- What are your current needs?
- What do you know you will need in the future?
- What are your personal and financial goals?
- Spend a couple of weeks writing down every penny you spend. This will give you a good idea of where your dollar amounts should be when you make your first budget. Try to identify your spending leaks ahead of time. To identify them, list out how much an extraneous item costs, multiply for how much you spend in a month on that item, then calculate for a year.
For example:
| Item (examples) | Cost of Item(s) | Cost Per Month | Cost Per year |
|---|---|---|---|
| Soft Drinks (2 each work day for 20 days) | $1.50 | $60.00 | $720.00 |
- Be prepared to make adjustments as you draft your first budget, and each month after, as wants and needs change.
Again, while budgets do take time and commitment to begin, over time they will become a routine part of your life. What will be new and refreshing is the increased freedom, deeper sleep, and lower stress that comes from making a budget plan a regular part of your everyday life. So, what are you waiting for? Start today!
MAX Credit Union is a full-service financial institution serving Central and East Alabama, including Montgomery, AL; Auburn, AL; Opelika, AL; Prattville, AL; Wetumpka, AL; and Troy, AL.