Why Create a Budget

What does a picture of a beach in Hawaii have to do with creating a budget?  Maybe nothing, but for some it may be everything.  Having a budget doesn’t necessarily put you on a beach in Hawaii, but creating a budget, managing it and living by it could help you get there, or anywhere else you might want to get in life.  It’s a plan of sorts to keep track of what you intend to do and how you are doing at accomplishing it.

why create a budget

Why create a budget?  Well if you are like most people, you probably feel you know where your money is spent each month and think you don’t need it all written down to keep up with it? You can always log into your bank account and see how much you have left, right? Here’s a challenge for you. Keep track of every penny you spend for one month and I do mean every penny. You’ll probably be surprised to see where you actually spend your money.  The first time I did this I was really surprised at all of the places I spent money without really even thinking about it.  For a short time it made me kind of fanatical, I was avoiding spending everything so I wouldn’t have to take out that little book and write it down.

You’ll be astounded at how fast those little purchases add up, you know like out to lunch every day or that cup of coffee at Starbucks in the morning. Next, total the amount you spent on just one of those items for the month, multiply it by 12 (since you probably do this every month), and then multiply the result by 5 to represent 5 years.

Wow, this is a big number, right? That is how much you could have saved AND drawn interest on in just five years. That, my friend, is the very reason all of us need a budget. I guess you would have to ask yourself, would I rather have the cash in my pocket or the coffee (or whatever you used in your example) in my hand.  You can do the same thing with that extra income you earned.

If you can get control of small unnecessary expenses that you could survive without, you can enjoy financial success.

 

why create a budget

Those small purchases really do count in the long run. Reducing what you spend on lunch from seven dollars a day to four dollars a day on every workday in a five-day workweek will save you $15 a week, $60 a month, $720 a year, and $3,600 in five years, plus interest.

Are you starting to get the picture? It really is the small stuff that is simple to change that can make a big difference. You can still eat lunch every day, just change your habits, maybe you could bring your lunch a few times a week. The good news is that was only one way to cut spending and save money in your daily living without doing without cutting something you really need. If you look closely at your list you kept there are additional places to cut expenses. It may take some work to find them but they are there if you look for them.

Now that you have a better understanding of what budgeting can do for you, set some specific short-term and long-term goals. There are no wrong answers here. You can start as small or big as you want, the important thing is to get started.

Budgeting and setting goals will help you in a number of ways. If you want to be able to make a down payment on a house, start a college fund for your kids, buy a sports car, take a vacation to Disneyland or anything else, then that is your goal and your reason to get a handle on your financial situation now.

Want to get out of debt even faster, try creating a snowball debt reduction plan.

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