When you hear the word “budgeting,” your first thought might be that it’s mostly for young people starting out in their careers and adult lives.
Yet, budgeting can be important for everyone, no matter their age. And even if you feel that you’re in pretty good financial shape, with a reasonable amount of savings and investments, you can still benefit by establishing a budget or improving your current one.
Here’s what budgeting can do for you:
Give you feelings of control. Not knowing where your money is going can be bewildering. But when you follow a budget, you’ll get a clear picture of your money movements. Consequently, you’ll feel more in control of your finances — and possibly your life, too.
Help you identify your priorities. A budget is, first of all, a practical tool that can help you manage your finances by showing what you must spend on your needs — mortgage, utilities, car payment and so on.
But a good budget should also have space for your wants — which can range from mundane things, such as new clothes and entertainment, to more aspirational items, such as gifts to charitable organizations you strongly support. By having your needs and your wants in front of you, on a piece of paper or a computer screen, you can determine if you’re spending too much on things that aren’t important to you and not enough on those that are. Consequently, you may be able to adjust your budget in a way that allows you to put more financial weight behind your priorities.
Save for emergencies. You never know when you’ll need a major car repair or a new furnace or face a large medical bill — all of which can be true budget busters. That’s why, within your monthly budget, you should designate a certain amount to an emergency fund, with the money held in a liquid, accessible account.
To make it easier to contribute to this fund, you can set up automatic transfers from your checking or savings account into a separate, liquid, low-risk account.
It’s a good idea to keep at least three to six months’ worth of living expenses in your emergency fund.
Help you pay down debt. By sticking to a budget, you can determine how much money you can devote to paying down your debts. And if you find opportunities within your budget to cut back on your spending, you can use the savings to reduce your debts further.
Save for your future. Here’s another important category for your monthly budget: the future. You should always try to put away some money, even if it’s only a relatively small amount, to a retirement account such as an IRA.
As your salary goes up, you can increase these amounts. Of course, you may already be contributing to a 401(k) or similar account where you work, but you could spend decades in retirement, so you’ll want to accumulate as many resources as you can for those years.
A budget is a humble-appearing document. But, as we’ve seen, it can play a far more meaningful role in your life than you might have thought — so use it wisely.