Why Budgeting Works
Living without a budget is like traveling across country without a road map. Although both can be achieved, the result is usually expensive and wasteful. Hence a budget is meant to prepare you and help you curb those wastes.
A budget acts as a road map
A budget will reveal where every dollar is currently being spent. The visual representation of the actual expenditures reveals the direction followed. When the course being followed is incorrect, the budget can be used to re-route your plan. The budget is a living document that must be updated with the changes that occur in your life.
Revels Waste
A detailed budget that is compared against the actual monthly expenditures will reveal the incorrect use of money. When money is spent on non-budgeted items, budget shortfalls are created and can be corrected. When you can identify a source of waste you can then take corrective action.
Helps in Building New Habits
Efforts to stay within the budget will build new spending habits that can be maintained over time. Working within the budget will shift actual expenses from unnecessary categories into the most essential household categories. Money will be available for the most important expenses and debt reduction becomes possible.
Controls Spending
If expenditures exceed budgeted amounts, corrections can be made in the coming months to control the monthly flow of money. When outstanding debt is weighing on the monthly finances, the budget can show areas where spending can be reduced to find the money to repay the debt.
Grows Savings
Budgeting activities make money available to save some of the monthly income for various reasons. Short- and long-term goals can be reached through savings efforts that seemed impossible just months before a budget was created. Savings becomes the highest priority and money can be saved ahead of paying the bills since every expense is closely monitored and compared to the budget.
It’s important to note that to compliment the expensive American lifestyle, budgeting should be a tool in the hands of every African immigrant in the United States.
7 Practical Tips for Effective and Hassle-Free Budgeting
- Understand why are you budgeting
- Budget is only meaningful…if you execute
- Save First then spend
- Monthly budgeting for periodic expenses
- Anticipate the unexpected
- Do not forget the big expenses
- Narrow down your budget categories to 3
Budgeting without purpose is a waste of time. There are several important reasons to budget, but keep in mind that everybody’s financial circumstances are different. Some may budget to make sure they can pay all of their bills. Others budget to make sure they have extra money to fund retirement or pay down debt. Identify why you are budgeting.
How many times people set up a budget in their favorite budgeting tool and then completely forget about it? Many times setting up the budget makes us feel like we are doing the right thing, but it doesn’t have any meaningful effect on how we spend our money. We need to execute on the plan
A very effective budgeting strategy is to set aside savings as soon as you get paid. By doing so, you avoid the temptation to spend that money later in the month. You also aren’t fooled into thinking you have more money available to spend than you really do. The pay yourself first strategy can also be used to tackle debt. If you plan to have extra money to put toward credit card debt, for example, don’t let that money sit in your checking account until your payment is due. Make the payment immediately.
There are a lot of expenses in most budgets that aren’t monthly. In addition to car insurance there’s life insurance, vacations, gifts, property tax, and estimated taxes for some. The way to handle periodic expenses is simple. Add up the annual cost for all of your periodic expenses. Then divide by 12 and set this amount aside each and every month.
There are some expenses you know are coming, but you don’t know when or how much. Home and car repairs are a perfect example. With enough experience, you’ll be able to make reasonable estimates for these expenses. And even if you come up short, at least you’ll have some of the cash you’ll need to handle these unexpected costs.
Budgets often neglect the big purchases, like a car, that we know will eventually hit us. Even if it’s years away, setting aside just a little bit of money each month now will enable you to pay cash when the day comes.
Many people avoid budgets for one reason–the thought of tracking every dime they spend is just unbearable. If that’s you there is a simple solution–don’t. For many, there is no need to track every category of spending. Remember to think back on why you are budgeting in the first place. If it’s to control your spending, figure out what spending areas cause you the most trouble. If you are like most, you can probably narrow it down to 3 categories or fewer. Then just track those 3 categories of spending.
Source: Financial Advisor Rob Berger
Afrikagora Magazine
