Many people create budgets for either personal or business use, but why do you really need one?
First, it is important to understand what a budget actually is. A budget is a financial plan for a specific period of time, usually monthly or yearly. It is used to track spending and saving habits over that period. Budgets are not only for personal use, but also for organizations, businesses, or any entities that earn, spend, and save money.
Now, why do you need a budget?
It prevents overspending.
With the widespread use of credit cards and the ease with which purchases can be made, it is very easy to overspend. By creating a budget, you will be able to see how much money you should be spending in different categories, including housing, transportation, entertainment, and personal. If you follow your plan, you will avoid overspending your money.
2. It allows you to plan for the future.
If you have specific goals, such as putting a down payment on a new house or going on a trip to Paris, a budget can help you to put aside money each month for these items. The amount that you put towards these goals may vary each month, depending on the different expenses or emergencies you may have. By planning ahead, you will hopefully be able to reach these goals quicker!
3. It allows you to prepare for unexpected expenses.
Rather than simply spending as you go, utilizing a budget will allow you to adjust as you go and monitor your spending habits. Without a budget, it is easy to just keep spending and not think about the bills for the month. If you are hit with an unexpected expense, like a large medical bill or a speeding ticket, it will be difficult to plan around it without a budget. You would have to modify your monthly budget around this expense, and possibly have to tap into your savings or emergency fund. This could also affect the following months' budgets, depending on how large the expense is. Although having a budget does not necessarily mean that you will be prepared for any expense, it still allows you to plan ahead and hopefully be better equipped for emergency situations.
These are just a few reasons as to why budgets are important, and of course, there are many more!
To get started with creating your own budget, you can look up budget templates online for a digital version, design your own in a notebook or journal, or purchase a budget planner. I would recommend looking for digital budgets as there is a great abundance of free templates and resources!
For more ideas, check out these links:
Personal monthly budget (office.com) - Free template!
Amazon.com : Budget Planner – 12 Monthly Expense Tracker Notebook, Faux Leather Hardcover Financial Organizer, 6.1" x 8.25" Budget Book with Pocket, 2 Stickers, Premium Paper, Undated Bill Organizer, Account Book : Office Products - $10 Budget Planner