Updated: May 6, 2021
1. What is Budgeting? What is a Budget?
Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do.
Budgeting is simply balancing your expenses with your income. If they don't balance and you spend more than you make, you will have a problem. Many people don't realize that they spend more than they earn and slowly sink deeper into debt every year.
2. Why it's important to set up a budget?
1. Gives you control over your money
Most people who do not have a budget end up overspending each month. It limits their spending power in the future as more and more of their salaries have to be applied to debt payments. If you are worried about restricting your spending, consider what it would feel like to have the majority of your paycheck be applied to credit card payments. The stress of finding a way to pay for the rising cost of gas and food can be astronomically when most of your paycheck is already planned. So, you should use your budget to help you determine when to stop spending.
2. Keeps you focused on your money goals
A budget is a plan that helps you prioritize your spending. With a budget, you can move to focus your money on the things that are most important to you. It may be getting out of debt, saving up for a home, or working on starting your own business.
Your budget creates a plan and lets you track it to make sure you are reaching your goals.
Set aside money in your budget each month for your goals.
Your budget will help protect the money you have already saved.
3. Helps You Save Money
Life is filled with unexpected surprises, some better than others. When you get laid off, become sick or injured, go through a divorce, or have a death in the family, it can lead to some serious financial turmoil. Of course, it seems like these emergencies always arise at the worst possible time—when you're already strapped for cash. This is exactly why everyone needs an emergency fund.
4. Helps You Stop Worrying
Most people do not like the restrictions that having a budget puts on them. However, you decide how much you spend in each category. So if you want to put a large portion of your money towards your leisure activities, as long as you are saving and meeting your other needs, you shouldn't feel bad about that. However, once you set up limits, you need to stick to them. If you aren't doing that, you may have a budgeting weakness that you need to address. Budgeting is not about limiting the fun in your life, but opening up opportunities and money to have more fun. The key is remembering to include these categories in your budget.
You will know how much you have to spend on each category.
You will be able to stop spending when you no longer have money available
5. Leads to a Happy Retirement
Let's say you spend your money responsibly, follow your budget to a T, and never carry credit card debt. Good for you! But aren't you forgetting something? As important as it is to spend your money wisely today, it's also critical to saving for your future.
If you, as a business owner, see that you cannot handle accounting on your own, consider hiring an accountancy service for contractors to help you with it.
Call Irvine Bookkeeping now for a Free Quote!