A budget is essential if you want to have a strong financial outlook. Here are 5 problems that you will likely face if you do not have a budget. Hopefully, reading about them will encourage you to get on the budget train.
1) Difficulty Saving Money
One of the biggest advantages of having a budget is the ability to allocate a large part of your take home pay to savings. Saving money without a clear budget is very difficult, for a number of reasons.
When you have a budget, you can specify that a certain amount of money goes directly to savings. Ideally, this will be 10 to 30 percent of your take home pay. You pay money into your savings first and then you use your budget to allocate the rest of your money to cover your financial obligations.
Here is an example of how it works. Your take home pay is 6000 dollars a month and you want to save 1500 dollars. A great goal that will serve you well down the line. A budget will have you put 1500 dollars into savings and then will allow you to carefully allocate the remaining 4500 dollars of your money. This is something that just can not be done by guessing, because you need to have precise control of your spending, down to the dollar.
Without a budget, it is far too easy to spend all of your money with nothing left for savings. Can you save money without a budget? Sure, but chances are that you will never be putting enough money into savings. Additionally, you will constantly be tapping into your savings to cover your normal expenses because you have not set spending limits and overspending will be common.
2) Too Much Debt Accumulation
Without a budget, you are likely to come up short from time to time and find that you need money in a hurry. We already know that you will not have an emergency savings to fall back on, so where will you turn. If you are like most Americans, you will turn to credit cards.
Credit cards will fill in the gap between what you make and what you have been spending. Worst of all, they will encourage additional overspending because it is easy to just keep going when you have a seemingly endless pool of money to work with. This is a huge problem. Paying 20 percent interest on normal expenses is never a good idea and the upcoming credit card payments will further restrict your cash flow.
But what if you already have credit card debt? Should you have credit card debt already, it will be very difficult to get out of it without a budget. A budget will help you dedicate a portion of your income to paying down debt, which is much better than simply making the minimum payment and hoping that things get better.
3) Unbearable Financially Stress
Living paycheck to paycheck is a very stressful way of life, and more people in this country do it than you might expect. You might think that this is a problem only for the poor, but even people with high levels of income can live paycheck to paycheck and be financially stressed.
A budget will allow you to efficiently handle your finances so that bills get paid on time, you do not get overextended and so that you can build a comfortable emergency savings. These are all things that can ease your mind and help you live a stress free financial life.
Even those with minimal income can find relief with the structure and order that a budget gives you.
4) Questionable Ability To Retire
Most of us want to retire at one point or another, but without a plan, this is virtually impossible. A budget is this plan and you can use it like a road map to retirement.
Simply determine how much money you need to comfortably retire and then divide that by the months until you plan to retire. That will give you the monthly amount that you need to put into a retirement investment account.
Now, when you get paid, pay money into your retirement fund first. Then, use your budget to effectively manage the rest of your money so that your financial obligations are met.
Should you find yourself coming up short at the end of the month, you have all of your expenses and spending in front of you. That will allow you to see where changes need to be made so that you can stay on track for retirement.
5) Lack Of Financial Control
Your overall financial picture is just too confusing if you do not have a budget. If you are confused about your finances, you will be out of control financially and that can cause a number of problems.
One problem is constant late payments. Your budget lists all of your expenses in one orderly place, making it easy to check all of your bills of once a month. Without it, you might miss a payment which can lead to costly late payment fees and even damage to your credit rating. It can also cause a lot of inconveniences, like having your electricity or your cell phone shut off.
Another problem will be the inability to control long term plans. Do you want to go on a vacation in a few months or come up with a down payment for a new car? If you do not have control of your expenses, these can be difficult things to do.
Finally, that budget will let you know what you can spend and maintain control. You will know when you need to pull back and might even find that you are free to go ahead and spend in situations. This is all because you will have control of your finances.