Do you keep a budget of your household expenses? The simple balancing act of knowing where every penny goes is not just a wise move but a practical solution for not plunging into debts, especially in an economic crisis.
Below are five other important reasons why everyone should start and keep a budget:
1. A budget ensures that you only spend within your means.
Did you know that an average American household has over $6,000 in credit card debts a year? Far too many parents spend more than they earn because credit cards could easily prompt anyone to live beyond their means.
Most consumers don't realize that maxing out on their credit cards can drown them in debts that will be harder to pay off as it accumulates. However, wise spenders will less likely find themselves in this position by sticking to a budget.
A budget gives parents an idea of how much money they can spend or save each week or month. It stops them from shamelessly shopping and swiping their purchases via credit because they know their exact spending power.
2. A budget can help achieve goals of saving for major expenses.
Having a budget puts long-term goals firmly into place. It prevents parents from spending aimlessly and tossing money on items they likely don't need because they know they are saving up for the bigger expenses, such as a dream house, quality appliances, or a new car.
It's easier to push back on buying those gorgeous new shoes when a mom has plenty of other footwear, so that money goes into her savings instead. A budget keeps dads focused on spending for the more important stuff. It may also help discussions with family members on why some expenses have to be held off because it doesn't fit with the budget.
3. A budget helps streamline your tax returns.
Financial planner Logan Murray understands the headache of going through one's financial records every tax season. In an interview with The Balance, he said that tax season means "going through the entire year of transactions" for whatever needs reporting with the IRS.
However, if the parents maintain a budget, then reconciling what to report should be streamlined because they already have the data from their budget. These days, it's easier and more efficient to keep track of a budget with the help of software, which will be very handy during tax season.
4. A budget allows room for emergency expenses.
Parents can't put off emergency expenses, such as hospitalization or home repairs, so they need to prepare for this in their regular budget calendar. Otherwise, these expenses will quickly derail finances.
Wells Fargo recommends a budget of "at least three to six months' worth of expense" for emergencies. Ideally, put this budget in a separate bank account every week and then adjust the amount to save accordingly based on financial stability, family needs, and financial obligations.
Make sure to use the emergency budget only as a last resort or for unexpected spending. Replenish this budget when used so there will always be something for the rainy days.
5. A budget helps you sleep better at night.
Money problems can make anyone anxious and worried, especially if bills pile up. Even before the pandemic crisis, money woes have kept more Americans up all night thinking of ways to earn more money to pay their obligations.
Financial stress affects people's overall physical wellness. However, a budget will likely keep you from tossing and turning in bed at night because you know you have this under control.
Tracking money that goes in and gets out gives the consumer the power. A budget creates a financial map that helps the brain make better decisions.
Related Article: Money Troubles: How to Tell Your Kids That Money is Tight
