Why you need a budget
There are many benefits of keeping a budget to manage your finances. Here are a few key values of keeping a budget.
Being aware of your financial situation
Keeping an up-to-date budget allows you to be completely clued-up about your financial situation and how changes can be made for improvement. You will be able to see clearly what your expenditures are and how much money you are receiving, you can make decisions from this such as what areas of spending you would like to decrease and how certain income streams may be able to be increased.
Being aware of how much money you have and allocating an amount to each area will also help you to avoid overspending in any particular area. You will start to research how to cut spending on unnecessary things and review money saving alternatives.
Keeping a budget and allocating a certain amount towards ‘emergencies’ will help you to keep a contingency plan and to be prepared for any unforeseen circumstances that bring expenditure.
Because of avoiding overspending and allocating funds to ensure that all expenditures are covered each week, budgeting will enable you to avoid losing track of your finances and falling into debt. As a result, this will bring further benefits such as keeping your credit score positive and allowing you to be eligible for future financial products such as mortgages.
Improving your financial situation and goal setting
Budgeting is a great way to allow you to visualize a better situation for yourself. Budgeting can be highly motivating because it often simplifies financial situations and will allow you to set goals and targets such as to save a specific amount in the next year or to increase your income by a certain amount. With an effective budget, you will be able to track your progress and see how close you are to achieving the goals that you set.
There are many different styles of budgeting, some simpler than others. Each individuals’ financial situation is different and therefore there is no ‘one fits all’ rule when it comes to making the most effective budget. There are many budgeting templates that can be found online and adapted to suit your preferences, there are also budgeting smartphone apps so you can keep an accessible record on your phone. Here are some key tips.
Know what to include
The most effective budgets include every key income stream and expenditure to ensure that an accurate picture of your financial situation can be given.
-Entertainment / social
Budgeting these different factors means that you will decide the amount of money needed for each thing on a weekly or monthly basis and you will allocate this amount from your income. It is important to be relatively strict with your budget, for example if you allocate a certain amount of money towards ‘entertainment’ each week, you should really try to keep to this in order to reap the benefits of keeping a budget. Budgets can fluctuate because some expenditures are fixed and some are variable, there may also be occasions where you receive more or less income.
Keep it simple
If you are new to making budgets, it is important not to over-complicate things. Starting simply with a list of all income streams and all expenditures is often the best place to start. This way you can work out how much spare money you have left after each week or month.
Keep it updated
Keeping your budget up to date ensures that you will remain aware of your finances each week/ month even when there are changes in expenditures. Keeping records of how and when your situation changes can also be beneficial because you can learn from previous mistakes and start to become more educated on how to best manage your personal finances.