The term budget can send a chill down the spine of the average consumer. We like to think that our paychecks will accommodate our basic needs as well as our hobbies and personal interests. This belief runs hard against the realities of a slow economy where people have to work multiple jobs just to stay afloat. Creating a personal or household budget might seem like a big deal but the process is simplified when thinking about legitimate reasons to manage earnings.
A great reason to start a budget is to keep more of your weekly pay. Imagine how much money the average person spends on snacks, coffee, and other frivolous items. Each purchase might be a dollar or two but these dollars add up when purchases are made each day. These purchases along with poor decisions on major purchases like health insurance and transportation can eat into take-home pay. You can hold onto more of your money by creating a reasonable budget for your monthly income.
Your weekly, monthly or annual budget can anticipate unforeseen problems that we all experience. We don’t often think that our cars will break down until a tire goes flat or engine gives out. An unexpected medical or legal expense can be devastating for anyone who doesn’t have an emergency fund. A lost job without savings means a cycle of loans and credit card usage that leads to heavy debt down the road. An effective budget sets aside money each paycheck to anticipate these problems.
Individuals and couples looking to move up from their current economic status find budgeting very beneficial. You can use a household budget to set money aside for renovations or repairs to an older home. A budget is useful for anyone who has a steady job and is looking to purchase a condo or home instead of renting an apartment. Your budget might be used to balance monthly expenses with tuition bills for a first college degree or graduate school. Budgeting your paychecks can also make room for a down payment or monthly payments on a new vehicle.
Another good reason to start a budget is to anticipate the high costs of raising kids. New parents might be aware generally of expenses created when raising kids but they don’t realize these expenses until they have children. The combined costs of healthcare, clothing, food, education, and entertainment can dig deep into parents’ pockets. A smart move for aspiring parents is to spend some time before having children sticking to a reasonable budget that accounts for the aforementioned costs. This budgeting warm-up allows parents to get comfortable with expenses and set money aside early in the process.
The ability to retire after decades in the workplace also depends on budgeting. Potential issues with Social Security payments as well as dwindling pension opportunities offered by employers means that workers have to take retirement planning into their own hands. An effective method for budgeting for retirement is to assume that 401(k) and Social Security payouts won’t be around. This approach means that a retiree will have a safety net in this doomsday scenario but should have a sizable nest egg in more realistic scenarios.