Reasons on why do you need a budget…

Even the most financially-savvy individuals need and can benefit from a solid budget.

Being aware of your spending habits is essential to starting a budget, but unfortunately is time-consuming and can be frustrating. A reason budgets are so frustrating for many Americans is because they don’t understand why they need a budget. It may surprise you that the answer is not just to save more money. Understanding why you’re creating a budget can help you stick with one and take some frustrations out.

Here is why you need a budget – even if you are already good with money:

To Plan for your Retirement

Surprise, surprise: one of the biggest reasons you need to plan a budget is to plan for your retirement. Your first step is to get a clear view of your financial picture and to begin eliminating wealth. The best part?

Once you have eliminated all of your debt, you should continue to set aside those funds for your retirement account. This can help you build your savings and investments on your current income.

The focus on retirement is especially important. Roughly 34{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} of Americans have virtually no retirement savings, and of those that do have retirement savings, they most likely aren’t contributing enough to their pension funds. In fact, the retirement crisis is garnering national attention in order to boost retirement participation.

The good news is that retirement accounts have the ability to compound. Every little bit added to your retirement account adds up over time. So, think about your debts including credit card, mortgage and student loan debt and how much you pay toward that monthly. Once you’ve paid off your debts you can begin investing that money into your retirement account, where it will compound.

Additionally, if you are already on track for your retirement, continuing to save can help you save a surplus amount for your retirement. So, you’ll have sufficient funds for any emergency expenses that may arise.

The Reach Financial Goals

How many times have you thought to yourself “if only I had the money to do that?” Now think about if you could actually achieve that goal.

Chances are, you won’t be a billionaire and live on a yacht. But realistic goals such as taking a vacation or buying a new home might be more attainable than you think. Your first step is to identify your cash flow, both in and out of your life.

Your first step is to collect all financial statements from the past year. Bank statements are especially helpful. They can help you see how much money you spend monthly and where you are spending this money. After you check out your financial statements, you should break your spending habits into categories: monthly bills, food, gas, insurance, debt, savings, medical expenses and entertainment. These categories let you quickly see where the majority of your paycheck is going and where you could cut back.

Some credit card companies – like Chase – make this process even easier for you by categorizing your expenses and giving you 5{bc669dfb3651bb8509a96034cbe7494d3a811fc0eedf0ddccb239fb9cb737439} cash back for certain spending categories.

Once you have categorized your spending, you should input all of the money you’ve made. Identifying whether you are in the negative or if you have a surplus each month can help you come up with ways to improve your situation. You should also create a timeline for saving and paying down debt. Which will further help you keep on track and reach your financial goals.

To Prioritize and Spend Accordingly

We’ll make this simple for you: are your $5/day lattes more important than your retirement account?

The first step is to make sure you are aware of how and where you are spending money. This will allow you to break these poor spending habits. Allowing you to put money toward the things that matter to you.

If you’re in debt, this is especially important. Budgeting your funds after necessary expenses is designed to make paying off debt a priority. We recommend allotting money to different accounts or envelopes, and setting aside the bulk of your income toward paying off debts (after necessary living expenses have been paid).

Prioritizing may be time consuming, but in the long run, you’ll notice a big change. Even measures such as researching how to save money on the things like groceries and cable. Can help you eliminate your budget deficit by either aggressively cutting spending or finding alternative means to generate extra income.

To Be Able To Spend Wisely

Let’s face it: one of the best things about having a budget and eliminating your budget deficit is having extra money to spend wisely.

If you have a budget, you’ll have a solid idea of what is left over each month and can make certain purchases easier. The best part is you will be financially prepared for unexpected expenses because you’ll know what you can actually afford. Essentially: you save to spend.

We’ve all been in the position where we’ve overspent and felt terrible about it. The worst part is the anxiety of knowing you spent money on something unnecessary. Even if you have enough for your bills and needs, you most likely will still feel anxious when you realize that the money that went toward that large purchase. In which you could have save it instead toward future savings.

Here’s the great part about holding off on purchasing in favor of saving: you can always create a budget for the thing you want. This way you have enough money left over in your emergency stash and going toward your retirement fund, but you have set yourself a goal/deadline for achieving what you want.

Why You Need A Budget

Something as small as a budget can be the key to the entire financial success of your future. You need it to plan for your retirement, to prioritize your spending, and to have funds left over for emergencies. Overall, to be able to spend your hard-earned money without worries.

It won’t be easy. In order to create a solid budget will need to do some sacrifices and have self control. You’ll also  have to dedicate some time to the budget. As it will need to frequently be updated to reflect raises, emergency expenses and all of life’s little surprises.

It may also take some time for you to create the best system for managing your money, and once you have, don’t forget to budget something to reward yourself for all of your hard work!