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Why you really need to create a budget

A recent study by the Federal Reserve cited that non-housing,  household debt has risen 3.3% in the last quarter of 2013.  And a majority of US households indicated a financial setback of $5,000 or more would be a major financial catastrophe  Much of it can be attributed to the fact that 2/3’s of US households don’t have a spending plan.
So, why should most people have a budget?
A budget really is the first step of a financial plan for life and helps make sure you don’t spend more than you make.  A budget will also help you decide how much you should be spending in categories like entertainment or housing.  Without a budget, it is much more difficult to save and much easier to fall into the trap of living paycheck to paycheck or worse, using credit card debt to supplement your monthly spending needs.
What issues can be created by not having a budget?
Not having a budget can create a situation where your debt becomes overwhelming and any little unexpected expense can be a major financial burden.  Without a budget, one is more likely to have higher household debt, especially credit card debt.  Another big issue is that savings is never started and one misses the opportunity to build it over time.  The bottom line is that without a budget, you might not meet your true financial potential.
Is creating a budget just too difficult?
Perhaps the best way is to tackle the budget in small chunks.  Start with just a few spending categories like groceries, entertainment, and clothing.  Establish your spending limits in those areas and track your expenditures for three or four months.  Tracking just three categories is much easier than tracking every penny spent. Once the first three categories are under control, move on to three more until you have established a spending limit in all the categories in your financial situation. 
What is the bottom line result of having a budget?
Those with a budget are more likely to live the life they really want rather than leaving it to chance that they have the life they want.  Why?  Mainly because over the course of time those with a budget have planned for most of life’s unexpected financial situations and are better prepared to handle them than those who don’t plan.

Posted: 4/21/2014 with 0 comments

Categories: Budgeting, Money Matters, Spending

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