When it Comes to Personal Finance, Budgeting is an Essential First Step
Melinda Opperman,
President, credit.org
Anyone hoping to take control of their personal finances must start with budgeting.
Simply put, a budget is a plan. People need to plan for how much they’ll earn, how much they’ll spend, and what their long-term financial goals will be.
There are many reasons we urge everyone to take the time to create a budget:
- Budgeting helps you avoid debt.
At credit.org, we’ve spent over 48 years helping consumers conquer their debts. It’s clear to us from decades of experience that a lack of budgeting is what landed many of the people we helped in debt trouble. Any time someone carries a credit card balance from one month to the next, they’ve either failed to budget, or their budget isn’t working.
- Budgeting helps you save money.
We’re a local campaign coordinator for America Saves, and we’re keen to see more people save for the future. Most people we work with don’t feel like they have enough income for savings, but a good budget lets anyone set aside money for long-term goals.
- Budgeting helps you achieve your goals.
Speaking of goals, there’s simply no way to achieve them without some kind of plan. A budget lets you track your progress towards your savings goals and make adjustments if you’re coming up short. We think budgets and goals should be set out in writing—research shows that goals are 42% more likely to be achieved when they are written down.
- Budgeting prepares you for the unexpected.
The first savings goal we urge people to set is to save for emergencies. By saving up 3 to 9 months’ worth of income, you’ll be prepared for a period of unemployment or other emergencies that might come along. If the thought of saving that amount is overwhelming, break it up into smaller goals. Start small, think big! The first goal is saving your first $1,000. It can be motivating if you are willing to view it from that viewpoint.
- Budgets bring you peace of mind.
If you have stress in your household because of your finances, a budget gets everyone on the same page and working as a team. By planning spending in advance, you avoid buying things you regret later. A budget also helps you make tough choices when money is tight—all you have to do is stick to the plan.
Creating a budget and sticking to it makes you proactive, not reactive. If you develop the habit of spending only for planned expenses, then you’ll be more clear-headed when tackling unplanned spending.
We know it’s not always easy to live with a budget, but it’s definitely worth the effort. Take time to seek out free online budgeting courses, and if you need it, get one-on-one budget counseling with a certified credit counselor.
If you commit to having a plan for every dollar you spend, you’ll reap the benefits in every aspect of your financial life.
