1. You Need to Know What Your Expenses Are
The most important reason for making a budget is to identify exactly where your money goes. Knowing how much you spend on groceries, clothes and even insurance can help you understand why there never is as much money at the end of the month as you thought you should have.
When you know how much you spend on each item, figuring out where money is wasted and keeping spending under control are a lot simpler.
Plan for Short-term Needs
We all should have long-term objectives (see point #3). But before you plan for those, you must take care of subsistence expenses, like housing, food and transportation. That’s why short-term planning is so important : you need to plan for everyday projects that makes life better for you and your family, such as repairs on the house or sending kids to a better school.
Plan Your Long-term Projects
We all have dreams: a trip abroad, a better car, early retirement. This is the fun part of making a budget. It’s essential to identify projects and budget to achieve those goals. To do so, placing your money at the right place and letting it work for you is essential (see point #4).
How Much Should I Invest
Professional help is often needed to understand where and how to invest to achieve long-term goals. You need short-and long-term investments. The former will serve as an emergency funds while the latter can go to your long-term projects or retirement.
Adapt to an Everchanging World
You want to be aware of changes in financial laws that can affect your revenues and expenses, like new credit applicable to expenses or increased interest rates which could impact your mortgage payment. A clear budget is what you need to protect your bottom line.
Manage Preventable Debts
Probably one of the most important rules in personal finance is to prevent bad debts. There are good debts like mortgages and car loans (sometimes) but credit cards debt need to be cleared every month. It’s important to budget the expenses that are paid by credit cards.
It may sound a bit unusual in this post to talk about stress but money problems are some of the most common causes of stress. Knowing exactly from where your money comes and where it goes can reduce stress and let you have a good night sleep.