A budget is simply a plan to help you manage your income. However, there is a misconception every time the word “budget” is mentioned as it sounds like you have to stop enjoying stuff. Well, the truth is, this is a tool to help you make the right decisions that would, in the long run, create an even more stress-free life with regard to your personal finances. If you want to avoid getting a private mortgage on your home to pay off all that credit card debt, you have to get a hold of your finances once and for all.
What a budget does is it shows you where to allocate your money, and draw a cutline between needs and wants (things that can wait,) based on your financial limitations. A realistic budget should have the capacity to pull you out of debts, which often comes as a result of living beyond your means.
Who Should Budget
If you ever wished for a stress-free life in the future you should be budgeting. In fact, you are the best candidate if you are: working but feel limited by your earnings; trying to work your way out of debts; planning to make the best use of your resources; hoping to retire early; or are working to achieve a financial goal.
5 Simple and Direct Tips to Create a Realistic Budget:
- Establish a concrete goal
- Eliminate unnecessary expenses
- Document your plans on paper not just in the mind
- Choose to live below or within your means
- Track your expenses
Nothing has a financial impact on your money than when you consciously stick to a realistic budget. Mark the word ‘conscious’ – as that is what makes the difference. As in, budgeting in itself won’t hold you from bad spending habits, you have to stay conscious of your goals.
Actual Benefits of Budgeting
- Gives you a handle on your money – with a budget it means you are intentional with money that comes your way, how you spend and save it. Without it, it’s easy to plunge into a sudden lack of funds, compared to a case where you controlled your spending.
- Makes it easier to achieve your financial goals – with documented goals it means you are committed to trim away unnecessary spending to attain the set goals.
- Keeps you conscious of what is going on with your money – a budget opens your eyes to the exact amount of money you earn by factoring-in your taxes and other deduction. This means you’ll not be basing your expenditures on your gross earning but on your net income, hence removing the illusion suggesting you have enough money.
- Helps you categorize and prioritize spending – grouping your bills gives you a plan, and a platform to identify leaks. You will be specific on what portion takes what amount of money and why.
- You can save for expected and unexpected costs – a situation that demands immediate funds can send you to the prison of debts because you might have to borrow to satisfy the emergency call. But with a budget, you already have an amount set aside for emergencies as well as expected financial demands.
In summary, a budget helps you to refine your goals so you may stay focused. However, if you are not sure about making a realistic budget, you may want to talk to a budget expert to reason out together your financial progress at a personal level.