Why make a budget?

A personal budget is a plan that allocates your future personal income towards expenses, savings, and debt repayment. In simpler terms, a budget compares how much money you earn with how much you spend or save. Why is it important to make a budget? It’s because budgeting can give you control over your money and ensure that you are not suddenly blindsided by how much money you have remaining. Imagine you have blown through all of your money on video games and forgot you have to make a car payment. Now, you have to pay interest on your car payment, meaning you have to pay an even greater amount than your initial payment.

This is the harsh reality for many individuals who do not budget properly. If you keep a budget, you are more aware of where your money is and how much you should be spending, helping you eliminate unnecessary expenses. Unnecessary expenses are the interest payments and penalties you may be charged with after not paying your initial expenses on time. Many people opposed to budgeting believe that they have to make sacrifices on things that they love to purchase, but this is simply not true. Yes, you do have to re-prioritize what you want to spend your money on in the short run. However, by budgeting, you can buy that one thing you really want without being worried if you have enough money for it. Not only will you be able to buy what you truly want, but budgeting also builds a foundation for future wealth. For instance, if you're saving more money, you can use those savings and invest in stocks, something that will help sustain financial stability.

Without a personal budget in place, you can easily fall into a habit of overspending. The consequences of spending more than you make is potentially being caught in a cycle of debt. Once started, this cycle may be difficult to escape from as more and more of your income is used towards paying down your debt. If you want to secure a stable future and save money regularly, a budget is the best way to go.