If you’ve recently moved out on your own, started a new job, or even moved away to attend college or university, you may have to manage your own finances for the first time ever. And while you likely enjoy the chance to spend money how and when you want, this financial freedom comes with responsibility.
Managing your money wisely becomes much easier when you use a budget. Here are five reasons why budgets are important for personal financial success.
A budget shows you exactly how much money you have to cover your expenses each month. Track your take-home income – what actually gets deposited to your bank account after taxes and deductions. Include all your income, such as wages, allowances, investment earnings, business income, bursaries, and scholarships. Create your budget using a pencil and paper, or try our Kawartha Credit Union budget template. If you prefer the convenience of tracking your personal budget on your smartphone, try either Mint or You Need a Budget’s handy free budgeting apps.
Creating a budget highlights your monthly expenses such as rent, food, utilities, transportation, medical, and debt repayment costs. It’s harder to “forget” to pay a bill or set aside money for expenses when you’ve gone to the trouble of writing it down or inputting it into a spreadsheet or app.
Do you enjoy restaurant meals, sporting events, concerts, or weekend getaways? A personal budget reminds you not to exceed spending on “fun”. Yet including it as a spending category gives you permission to participate in favorite outings or activities. And because you’ve budgeted for it and know you can afford it, you’ll have the freedom to enjoy yourself without worrying about overspending, going into debt or even negatively impacting your credit when you want to have a good time.
Everyone has life goals that cost money. These may be short-term goals for the next three to five years, such as saving for a car, or paying off student loans or credit card debt. Perhaps you have a longer-term goal, such as buying a first home or building retirement savings. Budgets are important tools to help you meet these financial goals because they help you save regularly and consistently each month.
Creating (and sticking to) a household budget early in your adult life helps establish solid financial habits that can last a lifetime. Learning to ‘live within your means’ and avoiding spending money you don’t have can help you save expensive interest charges and build a strong credit history. And building savings slowly and consistently can help you meet your goals and even cover unexpected expenses.
Remember, you’re now an independent adult. So it’s up to you and you alone to make wise money decisions so you can pay your bills, cover your expenses, and maybe even save for the future.