How we hate math and the dreaded budget every month. It always seems to be in the red, so we avoid it, but maybe we are not using our budget correctly. Used correctly, a budget can help you plan and reach goals, both short-term and long-term.
Large Corporations Benefit From Following a Budget
Ed Bastian, CEO of Delta Air Lines, brought the company back into being profitable. He helped Delta earn back its investment-grade credit rating. How did he do that? No doubt he set up and closely followed a comprehensive budget for Delta Air Lines.
The amount of $13.75 million is the estimated net worth Ed Bastian. There again, how did he make so much money? No doubt a budget played a key role.
Benefits of Utilizing a Budget
Setting up and following a budget has many short-term and long-term benefits. The following short-term benefits of a budget will lead to its long-term benefits.
1. Helps you talk about finances with your family – especially if you prepare the budget together. You each set spending limits and hold each other accountable to reach them. Include your children so they can learn money management.
2. Setting aside an emergency fund – instead of dealing with unexpected events. Having an emergency fund for those times will ease the stress and financial burden. Having two or three funds would be a good idea.
- A fund for vehicle maintenance and emergency repairs
- A fund for home maintenance and emergency repairs
- A fund for unexpected events
3. You gain control over your money and spending – you are in control. You know where the money is going and why. You can plan ahead and adjust your budget based on changes in your finances.
4. Controls overspending – setting an amount you can spend will help you control your spending. You know how much money you have available to spend. Many people use the envelope method which involves setting up envelopes with money for each type of purchase. This helps them control their spending.
5. Helps you control your debt – when you know exactly how much you can spend, you don’t run out of money. Often people rely on credit cards to buy groceries at the end of the month. This is because they had spent their money elsewhere.
6. Improves your credit score – making payments on time should be a habit.
7. Focus on paying down debt – this is both a short-term and long-term goal. Sticking to your budget helps you have money to pay toward your debt.
- A popular method to pay down debt is the “snowball effect”
- Applying as much money as you can to your lowest credit card first and pay normal amounts on all other bills. When that is paid off, you apply the money to the next credit card or debit
- Others target their highest interest rate debt first, focusing on getting it paid off. Then rolling the money over to the next highest interest rate debt
8. Prioritize your financial goals – think about your priorities. Is living debt-free important to you, or is something else more important to you?
9. Are you a saver or a spender? – setting up a budget will show what you really care about. Your budget should be flexible enough to keep you and your family happy.
10. Helps you get organized – organizing your spending will help you get organized in other areas. You can stay on top of your bills putting an end to late fees or overdraft charges.
Long-Term Budget Goals
Having a reasonable budget will allow you to see how you can reach long-term goals.
1. Being debt-free – means being able to pay off all your debt, including your mortgage.
2. Investing money – after establishing emergency funds and savings, you will be able to start investing money.
3. Planning for retirement – moving your money into retirement plans. Plans for you and your spouse will help you meet your retirement goals sooner.
After setting up a budget and spending plan, you will see ways you can reach your long-term goals, goals like moving closer to your adult children and grandkids, relocating to another country, or being able to travel.
Author bio: I’m Jaylin: Guest post service planner of Leelija and full time blogger. Favourite things include my camera, traveling,caring my fitness, food and my fashion. Email id: [email protected]