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Sadly, it seems like Americans are slipping back to our old ways. The effects of the Great Recession included a more cautious American spender that used a budget to keep themselves from overspending. That time seems to have passed.
According to the latest survey from the NFCC.org, majority of the respondents (3 out of 5), revealed that they are not budgeting and keeping track of where they are spending their money. This is one of the habits that got most of us in debt and in a lot of trouble in the mid 2007 to 2008. Those who claim that they are spending less is also declining - which indicates that consumers are increasing their purchases. While this may seem good for an economy that is 70% reliant on consumer spending, that does not really bode well for the average American household.
We are not saying that you should stop spending. We are in a consumerist society. Not spending will be very difficult to do even if that is what you really want to happen. What we really want you to do is to keep on spending but before you do that, you have to seriously implement budgeting in your life. That way, you can easily monitor where your money is really going.
4 ways your budget plan can help your finances
If you need some motivation to get started on your budget plan, you may want to focus on the benefits. There are many positive results to budgeting and it goes beyond just telling you what your income and expenses are. To get you excited, here are 4 ways that a budget plan can help improve your financial management efforts and ultimately, increase your personal net worth.You can take care of your future self.
Although it might seem far off, you have to believe that every decision that you make today will dictate the life that you will live when you retire. If you have the habit of splurging your income in your youth, your older self will feel the effects of that. A credit card debt that accumulated since your 20s or 30s can haunt you for the next few decades - especially if you decided to pay only the minimum of what you owe. Based on a study done by the Employee Benefit Research Institute and published on EBRI.org, the retirement confidence in 2014 is slightly better compared to 2009 to 2013. But although that is true, there is still 24% of workers who are not confident about their finances when they retire. The study revealed that those who felt confident with retirement are usually those who had a plan in place. If this is your sentiment, then you should realize that budgeting will help you organize your income so you can ensure that your retirement contributions will always be met.You can plan your spending splurges.
Some people have the wrong idea about budgeting. They think that when they plan their expenses, it will put them in a very restrictive and depriving way of living. This is not true. If you know how a budget works and you can implement it correctly, you will realize that you can splurge on the things that you want and not feel guilty even if it is unnecessary. That is because your budget plan will help you identify the priority expenses and shift other purchases so you can make smart splurges every now and then. That way, buying new clothes or that new camera will give you genuine pleasure because you know that your budget is allowing that purchase.You can spot spending leaks.
Another benefit of budgeting is it will tell you where you are spending your money in places that you really should not. By seeing these leaks, you can move to seal that off or at least, schedule it so your other priority expenses will not be compromised. A budget plan is usually on a monthly basis. Those $1 or $5 purchases may not seem like much but if you total them, it will show you how it is eating up your finances and compromising your true spending capabilities. Once you have seen the leaks, it will be easier to make the sacrifices that will lead you to stop wasting money on them - like brown bagging your lunch or carpooling.You can be one step closer to meeting your goals.
Any financial goal, big or small, requires a plan to achieve them. That is how you ensure that you will succeed in achieving the goal. If you want to make managing financial goals easier, that can be accomplished by a clear and foolproof budget plan. Of course, it has to be partnered by implementation but the planning by itself puts you one step forward in reaching your goals. A budget allows you to put aside the necessary contributions needed to make your goals into a reality. It will also help you determine your progress so you can gauge if you need to kick your saving efforts up a notch.
Common pitfalls your budget can save you from
As you are implementing your budgeting efforts, you also have to be aware of the pitfalls that can be averted by following a budget plan. There are three important financial mishaps that it can save you from.
- Being late on payments. You will never be late again you input all of your debt payments into your budget plan. You do not have to worry about not having the money to pay off a financial obligation because your budget will make sure that you have put aside the contribution for that. But again implementation is the key to never be late on your due dates.
- Foregoing saving because of too much expenses. NerdWallet revealed that one of the habits that helped selfmade millionaires is their ability to save. You may think that this has no room in your finances because of too much expenses. If you list everything down in a budget plan, you can identify the details that you can remove so you can make way for your savings.
- Wrong assumption of your financial capabilities. This happens to most of us. We think that we can afford something when in truth, we cannot because there is a more important place for your money other than an impulse buy. Your budget will easily give you an idea about what you can afford to spend and what you cannot. Consult your budget at all times so you can stop overspending once and for all.
Budgeting can really work wonders in your financial life but, as mentioned several times, you have to be disciplined in following it. In case you feel like you budget is very difficult to implement, you might have created an unrealistic one. Do not be afraid to revise it if you have to. In fact, you need to keep on revising this budget plan so you can ensure that it is still aligned with your current financial priorities.