How many people have ever used a GPS, MapQuest, or a phone for directions? You probably used this technology to find the best route to get where you wanted to go. Now, imagine that you are trying this same process with your money, looking for directions, and trying to understand where it goes. We call this budgeting, or the technical definition:
“The process of creating a plan to spend our money that allows us to see how you are actually spending your money.”
According to MyMoneycoach.com, at its basic level, “Budgeting balances your expenses with your income.” What’s really powerful is that by seeing where you’re spending your money, it makes you aware of what’s going, shedding light on why you might feel financial stress. However, budgeting is one of the easiest tools for managing your money. It can save lots of headaches from overspending, and can help us stay out of debt. Additionally, you might see expenses to cut back on, how much is being wasted on interest from debt, or make a potential savings plan for a future purchase. With a budget, we have a very effective tool in keeping our spending plan on track. This is the cornerstone to financial well being, and offers many other benefits:
- It allows us to see what our financial priorities are and how we choose to spend our money, and can help us decide what expenses are really important, what we can reduce, or adjust. Ask yourself: “Do I really need this?” 2. Helps us to organize our savings, plan for future expenses, and helps us to save for the unexpected-those things that can easily throw us into debt, or cause enormous unnecessary stress. 3. Because we can see the whole picture, it can help determine whether we will have enough money to meet our needs. 4. By studying our budget for 3 to 6 months, it can help forecast our finances in advance and identify any potential pitfalls. 5. Most importantly, it can show us money that we are wasting, which can be redirected elsewhere. It’s not uncommon to find as much as $200, $300, or even $400.