Budgets sound boring and laborious–we get it. They can feel overwhelming to create, and you are probably wondering if you will even stick to it. So what’s the point?
But budgets are incredibly important. They can create financial stability by helping you stay on track with both your income and your expenses. Having a strong, accurate budget can help you with your day to day spending while also helping you create a plan for your financial future. Whether your goal is to pay down debt, buy a house, or save for retirement, budgeting will help you succeed.
When you create a budget, you know exactly how much money you have coming into your bank account every month. That means that you also know how much money you can afford to spend every month. Keeping that number in mind can help you to curb your spending significantly.
When the bills roll in every month, it’s easy to get overwhelmed. This is especially true with variable expenses, which we will discuss later. But if you have a budget you will know what these expenses should be (approximately) and you will be able to adjust your expenses in other areas if need be. In general, budgeting can help you feel like you have a good grasp on your finances.
Your credit score is the most important consideration in your financial life. If you are applying for a mortgage, a car loan, an apartment, or even a refinance, your credit score is the first thing that will be analyzed.
A budget won’t outright help your credit score, but it will help you by keeping on track with your expenses. People with good budgets are more likely to:
All of these factors can help increase your credit score, which will help you get approved for loans and secure lower interest rates.
Fixed expenses are the costs you have every month that do not change. A good budget will have a very inclusive and accurate tally of fixed expenses. These might include the following:
You may have some or all of these fixed expenses, and you might have other additional fixed expenses. Look through all of your bills and bank statements to make sure you have included everything. Fixed expenses are always the same month after month, so they are easy to include in a budget.
Variable expenses are costs that you pay every month that vary in the amount. Every good budget will have a list of these expenses with their monthly averages. Common variable expenses include:
If you have children, this list can grow quickly with sports and activities. Try to include everything. The more inclusive your variable cost list is, the more accurate your budget will be.
To get a good average of these, look back at your past year of expenses. Come up with a monthly total for each category, and then average them out.
Good budgets rely on accurate totals for fixed and variable expenses. If these numbers aren’t inclusive or accurate, your budget won’t be accurate–and therefore it won’t be helpful to you.
All good budgets include an emergency fund. Emergencies are unpredictable, so when one strikes it can spell big trouble for our finances. Having an emergency fund can help bail you out of a tight spot. If you do not have an emergency fund set up, an unexpected medical bill or mechanic bill will really throw your finances into disarray.
How much you will need in an emergency fund varies from person to person, but the general rule of thumb is to have six months worth of expenses on hand.
One of the ultimate goals for budgeting is to create a plan for future financial goals. These goals will vary from person to person and can be short term or long term. Some short term goals may be:
Long term goals often have a bigger price tag attached to them and can take longer to achieve. Common long term goals include:
Whatever your goal is, be sure to include it in your budget. Having a goal will help you to stick to your budget and motivate you to stay focused.
A budget is not something that you create and then say, “I’m done!” A budget will do you no good if you do not regularly review it and adjust it to fit your life.
You should review it regularly, at least once every month or two. Look at how your income is matching up with your expenses. Here are a few things to consider:
By regularly reviewing your budget you will be more likely to adjust it as needed and keep it as a functional part of your life.
Creating a budget is simple, but it is important that you be very organized and thoughtful throughout the process. The more organized you are, the more accurate your budget will be. Just follow our simple steps to get started.
If you don’t have a budget yet, here is your sign to create one. It will take a few hours to put together, but it can save you a lot of money and a lot of headaches down the road. And with the cost of everything these days, who couldn’t use some extra money?
We know a thing or two about saving money–after all, we save people hundreds (if not thousands) of dollars every year by refinancing their car loans. So if you want to save money on your car loans, get in touch with Auto Approve today!