The Importance of Having a Budget
No matter where you are in your life or career, budgeting is an important skill that can help you manage your finances more effectively. Most people don’t make or stick to a budget; this can result in debt and financial hardship. Having a budget will help you keep your spending in check and improve your overall financial situation. If you need some more convincing, we take a look at some specific reasons why it's important to have a budget.
Achieve your goals
Perhaps you’re saving up to move out and buy a property, or you want to pay off your credit card debts or a loan you’ve got on your car. All of these are great financial goals. A budget will help you achieve these goals within a reasonable time. It forces you to look at what you’re spending your money on and how you can cut down your monthly costs. When you want to splurge on something that you’ve not planned for, you’ll have your budget in the back of your mind, which can be a good stopping point. This will force you to stop and consider what’s more important, achieving your goals or buying an item out of your budget.
Realise how much you’re spending
It can be easy to spend money on the things you want in life mindlessly. Sometimes doing this without considering how much everything adds up can leave you overspending on certain things. When you take a real look into your spending habits, you might be surprised at how much you spend on your daily trips to the coffee shop over the month or your weekly takeaway. This can be shocking but also a great way to find new tactics for saving money to spend on things that are more valuable and life-fulfilling. For example, if you’ve been wanting to go on holiday for ages but don’t think you can afford it, take a look and categorise your spending. When you look at your spending habits, you might realise that you actually spend over £100 per month on your daily trips to the coffee shop near your place of work. By cutting out this habit, you could save enough to pay for your holiday in 3-5 months, depending on where you want to go.
Prevents issues with debt
Debt is a serious problem that many people face; it’s far too easy to get a payday loan or a credit card. Before you know it, you could struggle to pay back your debts and end up in a situation where you need help from a professional debt advisor. A budget can prevent this or help you if you’re currently going through the process of paying back your debts. One debt management solution is an IVA; as part of an IVA application, your insolvency practitioner will work out how much you can afford to pay back each month. Sticking to this budget will help you get debt free after your IVA. If you've had debt problems in the past, budgeting can prevent you from getting into a similar situation again.
Prepare for emergencies
Unfortunately, it's often inevitable that you’ll have to pay out for something unexpected, such as an appliance breaking or an issue with your car. Having a budget will allow you the opportunity to put money aside to pay for emergencies and unexpected bills. This is vital if you want to avoid getting yourself into debt in the future. Many people have to rely on loans or payment plans when something goes wrong, and they don’t have money put aside to pay to fix the problem. These loans and payment plans often come at a cost, which can further stretch your finances and see you paying back more money in the long run.
No matter what your situation, if you have lots of money to spare, or if you pay all of your bills and have very little money left at the end of the month, a budget is valuable. You can make your money go further, save for unexpected expenses, and achieve your long-term goals, whatever they may be. Start by reviewing your finances and setting realistic spending limits for each spending category.