Your business probably has a budget but do you? If not, you should! In these tough economic times, creating and sticking to a personal budget is a fundamental step towards using your money effectively and avoiding debt.
Still not convinced? Here are 5 reasons for making use of a personal budget:
- It gives you control: How often do you worry if you will make it through the month? If you are able to pay all your bills? If you could be saving more? A well worked-out budget will help you to answer these questions and more. When you budget wisely and understand where your money is going, you will feel more in control and at ease with your financial situation.
- It puts the brakes on spending money you don’t have: A budget forces you to work with the money you have – how much is coming in this month, how much you need to spend and save, how much you have left over. It will discourage you from relying on credit cards to make unnecessary purchases. For most people, credit cards are a slippery slope – once they start spending with plastic, they can’t stop, and they end up with major debt problems. Stick to your budget and you’ll spend the money you have or reduce your spending accordingly but you’ll never find yourself in a debt hole.
- It helps you work towards your dreams: If you spend your money as it comes in, on whatever takes your fancy, it is more than likely you won’t save any of it. A proper budget forces you to save first and to decide what to save for. This will help you to map out your life goals – what do you want to do in the next 2, 5, or 10 years? Buy a car? Move out of your rental? Take an overseas holiday? Retire comfortably? Whatever the goal, a budget will help you turn your dreams into realities. With your budget top-of-mind, you will find it easier to turn down impulse buys and to put your money where you really need it.
- It makes you pay attention to the future: Financial security doesn’t rest in spending only what you have every month. From the time you start earning, you should be saving and investing for future life circumstances such as retirement. A proper budget will include provisions for these essential financial tasks. Every month, you need to save and invest for what is coming, for example, retirement, children’s education, etc.
- And to what might happen: Accidents and illnesses can happen to anyone and it often feels like they strike at the worst, most cash-strapped times. Having an emergency cash fund can be your saving grace if you fall ill or are disabled and unable to work for some time. This emergency fund should cover 3 – 6 months of your living expenses so that you can survive until you are back on your feet. Don’t try to save this fund all at once. Rather, build a payment plan into your budget and start growing the fund as soon as possible.
Creating and sticking to a budget requires time and discipline – you will need to honestly examine your income, spending habits, and debts, and make some key decisions about how you will spend your money going forward. And you will need to review these factors on a regular basis for the sake of relevance. If you need help putting together a budget, chat to one of our accounting team. We can help you manage your finances so that they work for you!