How a budget can help you create balance

balanced budgetEvery January, I panic over the amount of money I spent for Christmas. I start looking at the bills coming due and our monthly income, and I panic even more.

After a more careful review of 2012, I know that we have over spent and could live more frugally and responsibly. Why does it matter?

First, we can live without some of the things we buy. We don’t need all the “stuff.” Second, I have noticed that my kids seem to feel a sense of entitlement. If they want something, we should just go out and buy it for them. It would be good for them to understand the importance of living within a budget.

In addition, if our finances are out of balance, we will feel out of balance. It can affect relationships, stress levels and sleep habits. Here are a few more reasons to establish a budget, balance your finances and live a balanced life:

Uncover waste
When you create a budget, you see – in black and white – where your money is going. For example, without a detailed account of your spending, it’s easy to ignore how much money you are paying for meals at restaurants and on take-out. After working on my budget, I was shocked to see how much we spend on fuel (gasoline and diesel) in a month. I know I have to do a certain amount of driving, but it makes me think about planning my trips and grouping my errands together.

Reduce stress
As the person who pays the bills, I know when our funds are tight for a particular month. It stresses me out. I lose sleep at night. By having a budget in place, I can be more prepared for the bills and unexpected expenses that come up. I won’t be guessing if we have enough money for a large purchase, or if we need to wait a few months. And I will know that we have the money available to pay all the bills.

Guide spending
Your budget can help you see where you can reduce spending on extras you may not need. At the same time, you may be able to put more funds toward eliminating debt and into savings.

Eliminate debt
There is good debt, and then there is bad debt. How can debt be good? Your home mortgage is a good debt because you are building equity in real estate, which has value. Your car loan is good debt if your loan payment is reasonable. Credit cards are considered bad debt. If you have outstanding credit card balances, creating a budget can help you pay off these debts. You may also be able to put extra funds toward mortgage or car payments to pay down the loan principal and reduce the amount you pay in interest.

Set priorities
A budget helps you get a big picture view of your finances. Your spouse may have different financial goals than you do. You may want to reduce debt, and your spouse may want to save for a vacation. By seeing your budget on paper, you can discuss the priorities you each have and find a way to align your priorities with your budget.

Build new habits
By working within a budget, you can develop new spending habits. You may think about that pair of new shoes or – in my husband’s case – new power tool before you buy it. With the big picture in mind, you realize that your budget plan is more important than these items.

Grow savings
Savings can include your emergency fund or the money you invest for retirement. If you think about saving from every dollar earned, it becomes easier to put the concept of savings in perspective and increase the amount you set aside. You can add your emergency fund and retirement contributions to your budget and make them as important as the house payment and the electric bill.

Give back
Making donations to your church or a favorite charity should also be a part of your financial plans. If you add it to the budget, then it is top of mind and is included in your monthly finances. You’ll feel good knowing that you are improving your financial situation and helping others.

Now that you know WHY it’s important to establish a household budget, next week we will write about HOW to create a budget. Do you have other reasons for living within a budget? Do you have tips for making a budget? Let us know!

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