Why You MUST Start Budgeting Now

Financial health is almost as important as physical and mental health. In order to reach optimal financial health, creating a budget is mandatory. A budget shows you where your money goes and how much expendable income you truly have. Since the numbers never lie, a budget is the best way to seek financial truth. Even if you are not a frivolous spender, a budget can help you plan for future purchases such as a home, a new vehicle or a family vacation. Creating a budget might be easier than you think.

Find Out Where the Money Goes

The first step in creating a budget is to find out exactly where your money goes. There are a number of ways to determine this depending on your lifestyle and what works for you. Some people use computer software or smart phone apps to do the tracking for them. Others track spending by storing receipts in categorized envelopes and tallying them at the end of the month. You might consider using one debit or credit card for all expenses and reconciling all your receipts to one monthly statement. The old-fashioned method works too: every time you spend, document the amount and spending category in a notebook.

Evaluate Spending

Now that you know where every penny is going, it’s time to evaluate. If you are coming up short each month, consider those areas where you might be able to cut back. Prioritize your expenses; begin with bills that must be paid each month and end with expenses that are not necessary for your family’s survival. You might be surprised at the amount of money you can save simply by cutting out your daily coffee run or weekly trip to the mall.

Dedicate Yourself

Once you have determined what you can and cannot afford, stick to it. Just because all of your kids’ friends have cell phones doesn’t mean yours need them too. Avoid comparing yourself to others because you can never truly know another’s financial situation. All that matters is that you are living within the means you can afford, and your goal is financial freedom. Don’t beat yourself up for an occasional splurge, but try hard to stick to a monthly budget that is not going to put you in the red month after month.

Consider an Annual Budget

Many families have implemented a monthly budget, accounting for all monthly expenses such as mortgages, gas, groceries and utilities. However, many expenses occur annually. Auto and life insurance, home and vehicle maintenance costs, medical costs, and annual vacations are expenses for which you should set money aside. If you overestimate these items, then you’ll have a little chunk of money at the end of the year. While you certainly cannot account for every unforeseeable expense throughout an entire year, an annual budget provides a larger, more accurate financial picture.