A personal budget is the most important tool when it comes to your financial life. It is the tool that helps us control our financial life in terms of expenditure and income.
To live without a personal budget is like going through a very large city, without knowing it and getting to various places without a map or without GPS.
A personal budget consists of an estimated budget where you have to anticipate your every expense and every income that you will achieve in a given period and an achieved a budget that must record all expenses and the income you’ve made.
The budget is useful for both people who are in a financial trouble and want to pass safely over this period and people who want to plan their road to enrichment.
Using this financial instrument can offer many benefits on your financial health. Here are ten reasons why you should consider a personal budget:
1. It helps you realize where you spend your money
It’s where you plan and write down all the expenses that you make. Helps you notice where your money is going and where you where you can adjust.
2. It helps to know which are your sources of income and how to grow them
It helps you plan your income. Revenues are often constant, which you can hardly adjust.
Most times the budget helps you analyze your financial situation and consider whether your income is sufficient for the expenses you have and your financial goals.
3. It helps you plan your expenses
How many times you went shopping with the purpose of acquiring a certain object and came back home with more than you wanted?
Budget has an important role in terms of necessity. Here are listed all the things you need to buy and those that are not necessary.
It helps you distinguish between what is necessary and what you would like to buy. Always choose what is necessary to buy.
4. It helps you get out of debt
Yes, it helps to get rid of debt. Once you know what your income is and when and on what do you spend the most, you will be able to reduce your expenses, save money and pay your debts in a shorter time.
5. It helps to avoid acquiring debts and spend only what we produce
Once you’ve planned the budget, this guarantees that you’ll spend only what you produce. All your income must be greater than the costs.
The difference between revenues and expenses is profit. The profit can pay your debts, start arrangements to buy a house, a car or plan a vacation.
6. It helps to plan the purchase of a home
Personal financial budget is your mirror. It shows how much you earn and how much you spend. It shows you how much profit you have per month. This profit can be invested in housing.
For a new couple who want to purchase a home, it is very important to use a budget for internal use.
The house you can afford is a home that costs no more than 2.5 times the total of your income a year. If it costs more than 2.5 times, financial problems may occur.
You can start with a smaller house and in time move to a larger one. Furthermore, having a personal budget helps you control interest rates on home and income without having financial problems.
7. Helps you be more structured and realistic
A personal budget help you anticipate your every expenditure on different categories of expenses.
Along with monthly budgeting, in the beginning you will have many reasons of frustration. In the first few months you will not be able to plan your budget because you’re not realistic.
You are subjective when it comes to financial planning and you will think you’ll be able to spend less and earn more. That’s not true! You spend and gain just as much.
8. It can save money
We cannot stress enough that a personal budget will help you save money from different sources which you can use in different directions, such as paying a vacation.
9. It helps you develop other sources of income
With a budget you can plan the start of a new business or invest in various mutual funds or investing on the stock exchange.
10. It helps you to be more motivated
When you will realize the exact amounts in terms of income and expenses, you will get more motivated to secure your financial future. This means you will save or invest wisely.