2018-11-06 – Update.
This article was written in 2017 and it’s still very popular and up to date.
In 2018 I would add 2 more reasons, from 7 to 9 reasons to spend 20 minutes on your budget (see point 8 and 9.
It amazes me to see how many workers go about their lives living from pay check to pay check. The long-awaited bank deposit that arrives on Thursdays disappears as suddenly as it appeared, leaving behind an empty bank account, unpaid bills and a feeling of disempowerment to those who work Monday to Friday to earn a living.
To remedy this, a personal budget can easily be made in 20 minutes, once all the necessary information has been collected. This time investment is a rather small “inconvenience” when weighed against seven good reasons to create a budget, as listed below.
1. Maintain control over your finances and take care of your basic financial obligations. Once your earnings and expenditures are well identified for each budget item, you’ll feel fully in control of your financial destiny and make the right decisions to fix the situation. Which budget item will have to be squeezed to reach your annual financial forecast?
2. Limit your debt and take action to tackle debt repayments. Considering buying a new car to replace that lemon that gets you from Point A to B, but only when it “feels” like it? Your budget will inform you how much you could afford in an eyewink. If you’re thinking of leasing a car at $600 per month, you know that a monthly payment of $300 is reasonable and won’t make any drastic changes to your lifestyle. By living within your means, it’s in this way that your budget will ensure that you don’t dig yourself into deeper debt.
The budget equally tackles the reimbursement of your total debt. How are you going to make the $8,000.00 that’s been looming over your head for the last 4 years disappear? The money that you will save from making interest payments will inflate your financial cushion, or will be redirected to other budget items that suit your fancy!
3. Start a savings plan to reach your objectives. Saving periodically is the best means to start your savings plan. Your capacity to save obviously depends on the amounts available in your budget minus all expenses. Try to predict a fixed sum to save each month. Setting up an automatic wire transfer between your present account and your financial savings account is an excellent means to “pay yourself first”.
4. Target your priorities. Your annual family surplus could reach $6,000 according to your most recent budget created. What will you do with this excess sum? It’s the ideal moment to plan, target your priorities and establish some financial decisions for the future.
Would you opt for the RESP (Registered Educational Savings Plan) in order to enable your children’s post-secondary education? Or would it be preferable to jumpstart this surplus in your RRSP (Registered Retirement Savings Plan) in order to recover a substantial tax savings that you could then apply to your anticipated mortgage return? And that trip that you’ve been talking about so much? Why not open a TFSA (Tax-Free Savings Account) to make the amounts deposited work for you so that you will finally be able to take that trip to Italy?
5. Reduce stress and improve your quality of life. Properly managing your personal finances will remove an enormous daily stress, thus improving your quality of life. Once the budget is completed and the relative financial decisions are made, you can stop right away wondering about your ability to meet all your financial obligations. Breathe, then orient your energies on what matters most to you.
6. Enjoy the freedom to make your own choices. Is the desire to have a fourth child calling you? Or does working four days a week seem to be the best compromise in achieving work-life balance? If you have the financial capacity, making a few modifications will enable you fit your goals into your annual budget.
7. Laugh at the unexpected. Got a leaky roof? Is your swimming pool motor breaking down? Many situations require variable spending that can quickly bog down your credit card balance. In addition to causing frustration and requiring additional sacrifices, these unexpected costs shake your conviction and work without an annual budget. Roll up your sleeves right away, and preview a certain monthly percentage for the title “Unforeseen Expenses” in your budget. Setting aside some money from the get-go, such an accumulated sum will allow you to preserve your smile during your next visit to the car dealership.
8. New ways to make more revenues. In 2018 there are more ways to help you get more revenues when the time gets tough or just to prepare for a specific project or just for fun. You can use the web to make money, see this article by Forbes . There are new app that pays you when you do your groceries, you can work for Uber part-time or rent your house or condo on Airbnb.
9. Talk about money with your loved ones. That may not be new in 2018 but it should be. If you have kids especially, this topic is so important. Kids want the new iPhone or tablet as soon as they are available but it’s important that they understand that there are priorities in life and the new iPhone should not be one of them. Show them how a budget work. They are talking more and more about this subject in school and that is a good thing. 06 education should begin at an early age, now more than ever.
You now understand that personal budgets accompany even the wealthy they’re not just for those struggling to make ends meet. The former have understood from a very long time ago that the personal budget is crucial to achieving financial independence.
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