What is a Budget and Why Do You Need One?

Introduction

Do you spend all of your money that you earn every month? Were there any times when you didn’t have a single penny at the end of the month? Have you ever thought of why this is happening? Maybe you already know the answer. It is because you don’t keep track of your expenses. If you ever recall your childhood you will remember that your parents would keep track of the money they are spending. They would have a fixed budget in which they decided what to buy and how they had to save for later. This is the best way to spend your money so that you don’t have any shortage of money at the end of the month. You may opt for using your credit card but you should always remember that it is a debt and you have to pay it back with interest. 

Using a credit card too much is also not a good thing because it will severely affect your credit score. If you know anything about the credit score you know how important it is to your financial situation. Heavy usage of the credit card can be one of the reasons for your credit score going down. Apart from that, you don’t want to be in a situation where you have to borrow money from others even though you have a full-time job. People should understand the importance of budget today especially the millennials. Millennials do not have a sense of budget and how crucial it can be for their future. More and more people seem to be unaware of budgeting these days. Even though people believe they should have a budget they are creating a plan for themselves.

This article is about budgeting, its importance, and why you should have one.

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What is the budget?

In simple words, a budget for an individual is a plan that is based on their income. It is a plan that will tell them how much they can spend on what. You create a fixed plan on what amount of money goes to which part of your needs. One will be dividing the money they earned into fixed amounts to allocate money for different things like food, savings, needs, and etc. After allocating fixed amounts of money to these things you will be tracking your expenses over a period of one. During this period you have to see if the money you spend on each category of your financial life gets aligned with your budget. If it is in sync with the plan that you have created then you are on the right path but if it’s not you may have to rethink the plan you have created. 

There are two reasons why your plan could fail. The first is you don’t allocate enough money for each of your which means you have miscalculated. Another reason is a simple one, you might be spending more than you have planned. If that is the case then it is entirely your fault as you are not sticking to the plan you have created. One thing you must remember is that you cannot save money if you don’t have a budget. And saving money is one of the most important things that you should do when you start earning money. Savings is the money that is going to help you when you are in an emergency or lose your job. It can help you reach your long term financial goals or pay your debts. If you cannot have a monthly budget then having a weekly budget will help you.

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Why do you need a budget?

It doesn’t matter what your income is, everyone should have a budget as it is very helpful for them. There are many ways in which a budget can help you, let’s look at some of them.

Paying off your debts

Let’s say you have debts and you are spending all of your salaries every month without saying anything. Remember that a debt is not only the principal you also have to pay it with interest. The more time you take to pay off the more money you will be in debt which is something no one wants. But how are you planning to pay it back if you spend all your money and don’t save any? You can pay off your debt with ease if you have a budget. When you make a plan on how to spend your money every month you will know how much of it you can use it for paying your debt. As you start doing this you will be saving more money as you would want to pay off the debt as soon as possible.

Saving money

You can only save money if you have a budget. It is because you will be allocating money for each and everything. So you will also be allocating money for savings. If you don’t know how important savings are, ask any of the elders you know. It will be way easier for you to reach all of your financial goals if you save money. The only way you can do it without affecting your personal life is if you have a budget.

Understanding your finances

If you just think about it, it is very easy to have a budget. All you have to do is look at the money you are earning and look at the money you are spending in a time span of one month. If you just carefully observe the amount of money you are spending then you will know where you are going overboard. You will understand what are the expenses that you can cut down. Cutting costs is the main reason you are creating a budget for yourself. Frankly, you will be more relieved when you have a budget. You will be saving yourself from all the financial anxiety and stress when you have a plan. This is because you know that you are good for this month and you will also be to do the same thing next month.

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Conclusion

The budget is very important if you want to go through your life without any stress. You will be planning how you are going to spend every penny so don’t have to worry about where your money is going. Having a budget will help you save money and reach your financial goals. If you are someone who is working a full-time job then you should definitely have a budget so create a financial plan today.

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