Money
Questions/Tips

Money Management: Why Budget?

Jun 26, 2007 - Americans are masters of ignoring reality when it comes to cash. Most Americans spend beyond their means, rack up impressive debt, and find their monthly income never quite covers everything.

If this sounds all too familiar, a budget may be your key to paying your bills, reducing painful debt, and still having money left over for fun.

Budgets get a bad rap. They seem restrictive, unrealistic, and boring. The truth is, a budget is merely a means of exerting some control over your finances. By budgeting, you're taking control of how much you spend and when, and gaining the upper hand now and in the future.

A budget is what you make of it, and good budgets are responsive and extremely personal. Budgets help free you from anxiety about the future, and from getting hit hard by the unexpected. They allow you to spread your income farther than you might think possible.

But it doesn't stop there. Why should you budget? For all these reasons, and many more:

Knowledge and Control
Many money problems and worries are rooted in confusion and a sense of powerlessness. Personal budgeting gives you the power to know exactly how much money is coming in and going out. A budget enables you to take control, and make your money work towards your specific goals. Finally, a budget necessitates and encourages organization. Think about how your mind could be eased with the simple knowledge of knowing where everything is – bills, receipts, balances, financial statements, and more.

Debt Management
In an annual survey by Myvesta in 2005, the average American carries $2,328 in credit card debt. Many Americans have more substantial sums on multiple cards. With high interest rates at or above 18 percent, debt can quickly accelerate and spin out of control. With a budget, you can tackle the debt you already have, and prevent yourself from adding on more.

Improve Credit
It's a straight line of connections. Budgeting involves, at its simplest, being organized. Organization means many benefits, but particularly paying bills on time and consistently. And this simple act leads to improved credit. With higher credit, you also get better rates on bigger purchases, like mortgages and cars.

Plan for the Future
With a budget, you can finally start or ramp up your savings. By keeping track of your monthly purchases and corralling your excessive spending, you can plan for monthly contributions to savings accounts, retirement accounts, and investments. This leads to financial security. With savings set aside, you can handle any emergencies that come your way. You can start looking towards the retirement you've yearned for. You make the most of your income.

Improve Communication
In a relationship where money is a conentitious topic? Budgets are a great way to create a plan together and nip money handling issues in the bud. Budgeting is a process, and part of the proces is discussing priorities with your mate and/or family. By budgeting, you give everyone a stake in sticking to the plan, and allow the famly unit to take advantage of opportunities.

Increased Money
Yes, that's right. As we said before, budgets get a bad rap as something that restricts money. But in fact, an effective budget increases the amount available to you. With good planning, you'll cut down your debt and the excessive interest payments. You'll build your savings. And you'll get rid of money-sucking expenditures that may characterize your day and month.

In the end, then, budgets allow you to truly manage your money. Instead of feeling chained to a paycheck, you can reassert your control, and feel the power of your income.

To learn more about budgeting processes and tips, read our continuing series that looks at money management in all forms.

Releasing the Inner-Millionaire in You

Money Management Practices Worth Following

Money Management - Creating a Budget (Part 1)

Money Management - Creating a Budget (Part 2)

Money Management - Creating a Budget (Part 3)

How Much Money Will You Need to Retire?

What's Your Investment Personality?

Keeping Your Eye on the Big Picture

Do Yourself a Huge Favor: Save 10%

An Emergency Reserve Account