The Advantages of Developing a Budget

by Laura Latzko

Planning out how you will spend your money each month can be a discouraging thought, especially if you like to be able to spend your money freely. When you have multiple bills and a limited income, it is important to make sure you allocate money for certain expenses before spending it on luxury items, such as a night out with friends, a new hairstyle or clothing or concert tickets. Developing a budget will ensure you know what money you have to set aside for important bills over a short or longer period of time.

Skills and Maturity Development

Learning how to budget allows you to develop planning and management skills you can use, especially if you have a job that requires you to do advance planning or if you have a family. Knowing how to manage your money teaches you to problem solve, because you often have to change your budget to reflect new expenses, such as car repairs. Budgeting will also help you to become more responsible because you will think about your spending choices in a responsible manner and be less inclined to spend your money on frivolous items, such as food, clothing, tickets or other items that you don't need. If you use a spreadsheet to create a budget, you will get a chance to hone your spreadsheet skills, including your ability to use formulas to add, subtract, multiple or divide within spreadsheets.

Money Situation

Creating a budget will help you to get a better understanding of how much money you have each month or year for expenses. If you are in a dual-income household, a budget will show the total amount of money you and your partner bring on a regular basis. Budgeting will also give you a chance to start figuring out what you can save each month to increase the amount of money you have in your checking or savings account for unexpected expenses or luxury items. From a budget, you can get a sense of whether you are feasibly able to support yourself or you and your family with your wages. Budgeting may show you that you need to get another or a better job to cover expenses or have spending money.

Expenses

A budget helps you to better understand what your bills and expenses, such as rent, utilities or food, add up to each month or year, although the calculations may be rough estimates if certain bills change each month or year. From a budget, you can get a sense of how long it will take to pay off long-term expenses, such as a college loan or mortgage. Looking at how much you spend can tell you if you need to take measures, such as moving to a less-expensive neighborhood, to decrease or even cut out certain bills or expenses. Having a budget often means you won't have to go to someone else or a bank or use your credit card to pay for expenses on a regular basis because your budget will help you to stay current on your bills.

Investments

Creating a budget allows you to look closely at whether you have or will have enough money in the future to make an investment in a business, stocks, mutual bonds, real estate or another type of investment. If you decide to invest, you will need to figure out how much money you need to allocate each month or year to support that investment. If you start a business, you will want to create a separate budget for your company. A budget for a company is different than a household budget because it takes employee wages, taxes and goods and transportation costs into account. Budgeting for an investment can help you to ensure that you have extra or sufficient funds when you decide to retire.

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