Tuesday, September 24, 2013

Why You Should Track Your Money

Many people cringe or experience fear when they hear the word "budget".  Many people feel the word is too restrictive and means they won't be able to enjoy life.  Many people today don't have a savings account.  Many of us have good intentions and start out creating a budget but after a few weeks or a few months pick up the old habits and start spending and charging again.  

A budget is your friend. It is there to help you when you need it.  A budget is your safety net if you get sick or lose your job you can use your savings to hold you for a few months until you can find a new job.  Creating a budget shows accountability for your spending and identifies what you spend, what you earn, and what you owe and reduces credit card usage.  

A budget is only restrictive if you don't have any extra cash left over after you pay your bills.  Stars and athletes have budgets; they hire accountants to keep track of their money so why shouldn't you keep track of yours? 70% of Americans live paycheck to paycheck and 40% of Americans live above their means. This statistic shows there is a serious problem in America. 

A budget frees you from stress, worry and anxiety because you know what you have, what you are spending and have the money available to buy the things you need and occasionally the things you want. A budget helps keep your finances in balance. When your budget is out of balance you use credit cards, go into debt and this can lead to serious financial problems such as foreclosure, bankruptcy, etc. If you know how much money you earn you should also know how much you spend. 

A budget is your financial roadmap and helps you deal with unexpected expenses.  What you do today or what you spend today will affect your future. A budget can help you plan for the future.  A budget frees up cash to achieve financial goals: plan for vacations, home renovations, your children's college education, and plan for retirement.  A budget is needed even if you pay your bills on time.  Some benefits of using a budget are:  helps you become accountable and responsible, prevents you from spending more than you have, reduce usage of credit cards and shows you what you are doing now. Here are 7 tips for creating a budget:

  1. Calculate. Subtract monthly expenses from your monthly income. If the total is negative or less than 5% of your total monthly income that is a red flag that you need to make some major adjustments to your budget.
  2. Track. Track your spending daily, weekly or monthly. Include everything you spend money on in your budget. 
  3. Verify. Verify your bank statements with your monthly receipts. 
  4. Savings. Include savings in your budget as a recurring item no matter if it is $1 or $1,000.
  5. Use a tool. Use a software tool, pen and paper, the envelope method or smartphone app.
  6.  Flexibility. Include some wiggle room. Make your budget flexible to accommodate for unexpected expenses.
  7. Create goals. Create short and long term goals and include in your budget. Create a monthly and a yearly budget

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