Budgeting is a common word in the financial world. It’s a simple concept, but one that’s not often practiced or knows the exact direct debit meaning. In other words, it’s a plan for spending money. Budgeting helps you spend your money more wisely, but it can also help you build savings, reduce debt and achieve financial stability. Here are 5 reasons to start budgeting today:
1. You’ll know where your money is going
Without a budget, it’s easy to spend money on things you don’t really need or want. Before you know it, your paycheck has been spent and you’re left wondering where all that money went. Budgeting allows you to track all of your expenses so that you know exactly where each dollar is going. When you see how much you’ve spent on restaurants, movies or clothes in a month, it may encourage you to cut back expenses in those areas and redirect those dollars toward saving or paying down debt. With budgeting software or an app like Mint®, tracking your expenses is made even easier.
2. List all sources of income
The first step in making a budget is to list all the income sources for your household — including salary, tips and bonuses from work, money from freelance or consulting projects, child support and alimony, Social Security or government assistance payments, dividends and interest from savings accounts, and any other income your family receives.
3. Determine fixed expenses
Next, make a list of all your family’s fixed expenses — things that cost the same amount each month that you have little control over. Examples include rent or mortgage payments, car loan payments, utility bills (including Wi-Fi and cell phone plans), insurance premiums and health-care plans, property taxes and homeowners’ association dues (if applicable), day care costs, tuition payments and retirement contributions. If your fixed monthly expenses exceed your household’s income at this point — even before accounting for food, gas and other everyday costs — then you’re spending too much money on housing or other large expenses.
4. Budgets make you create a spending plan
Budgets help make your dreams come true. Budgets help you achieve financial freedom. Budgets help you reach your goals faster than ever before. Budgets tell you the truth about how much money you have left at the end of each month in your account. Budgets give you a better control of your priorities and reduce stress levels and worry. Budgets teach us how to spend our money wisely and with care. Budgets allow us to enjoy our life because we know what we can spend on luxuries and what we cannot.
5. You’ll Know Where Your Money Is Going
One of the biggest benefits of budgeting is that it allows you to see where your money is going. After all, you can’t change what you don’t measure. By keeping track of your spending, you’re able to understand exactly how much money is being spent on certain items or areas. For example, if you find that you’re spending too much on eating out each month, then it’s time to cut back or find alternatives.