6 reasons why you should create a budget
Budget, the dreaded word!
No one likes hearing the word budget or considering creating one.
Why? They associate it with restricting their spending.
In contrast, our view is that it’s not about restricting your spending or depriving yourself.
Well, not unless you’re splurging excessive, unsustainable amounts on certain areas.
No, it’s more about being conscious of where your money is going.
Making a plan for your money, including fun stuff!
As a result, if you are spending more on one area than you should, it then gives you the power to control it and make changes.
Having a budget will also allow you to identify and plug financial leaks and gaps.
Without a doubt, a budget is a key element of financial planning.
The first base.
Here are 6 reasons why you should create a budget.
What is a budget?
Firstly, what is a budget? Back to basics.
Simply put, a budget is a plan that helps you manage your money.
It helps you identify and gain clarity on:
- How much money is coming in
- How much you spend
- Importantly, what you spend it on
- How much you are saving
- And where you are saving
It can take a bit of work to do your initial budget.
However, as a result, you’ll be conscious of where your money is going.
And, unquestionably, have better balance with your finances.
#1 Give yourself control over your money
Having a budget will ensure your spending and saving is intentional.
It puts you in a position to make decisions like sacrificing short term perks for a longer term benefit, for example, a holiday.
#2 A budget keeps you focused
Your budget will help you create long term goals and help you work towards them.
Unfortunately, most people drift aimlessly through life with their finances.
‘Ah sure, it’ll be grand, the money will be there from somewhere.’
Your budget will empower you to map out your goals and plan toward them.
Fancy changing the car in a few years?
Start planning for the down payment now, the higher the down payment you have, the less of a loan you have to take, less interest to pay.
Maybe you want to be certain the money will be there should the kids decide to go to college.
#3 It prepares you for an emergency
Very few people consider surprises or emergencies.
Yet life is filled with them, some positive, some negative.
No one likes to consider financial emergencies, yet unfortuntately they happen all the time and can happen to you and me.
People can get laid off, get sick or injured, divorce, family death etc.
Undoubtedly, any one of the above will stress a family’s or individual’s finances.
Obviously, this is why everyone needs an emergency fund.
Having your budget will help you to accumulate your emergency fund.
Don’t direct every spare penny to save for it, build the saving into your budget at manageable amounts.
Top tip: Recommended emergency fund level is 3-6 months of your net after tax income.
#4 Highlight bad spending habits
Fact: Unquestionably, we all spend money on stuff we don’t need.
As a result of your budget, you’ll get a close look at your spending habits.
Therefore, allowing you to direct this money in the first instance to something more productive.
Still money left after re-allocating? Then buy the useless stuff.
#5 It helps you to save and invest appropriately
Clearly, we have to save.
You may not wish to acknowledge that but it’s a fact.
With this in mind, a budget will allow you to save effectively.
Firstly, allocate X amount of your income to saving or building your emergency fund.
Automate it so it is done automatically, as a result, you don’t even have to think about it.
Secondly, this gives you the power to move onto the next step, investing.
Investing to really grow your wealth over the long term.
#6 Help you have a happy retirement
If someone doesn’t wish to acknowledge the need to save they wont wish to acknowledge the need to kick off planning for retirement.
Nevertheless, it’s a necessity.
Unfortunately, the state pension benefits just won’t cut it in retirement.
Take steps now to ease future financial pressure.
Depending on your age profile and your income, allocate a little, or a lot here.
The more the better as you’ll benefit from long term compound interest on same. But please, allocate something.
You will also receive tax relief on your pension contributions.
That’s correct, Revenue will cover a portion of the cost of your pension contributions.
If you pay income tax at 20%, they’ll cover 20% of the cost, if you pay income tax at 40%, they’ll cover 40%.
Secondly, you get tax free growth on your fund.
Thirdly, a nice tax free lump sum at retirement.
Summary
To summarise, a budget is super important.
It gives you knowledge of what is going on with your money which then puts you in control to make decisions.
It is the first step of having an effective financial plan.
As well as that, unless you live under a rock you’ll be aware of the increase in the cost of living crisis.
Thus underlining the importance of having a budget.
Whether you are single, married, have a family, live alone, live with parents, do yourself a favour and create a budget.
How We Help
Unsure where to start, download our free editable budget template below.
This will allow you to track your spending.
Consequently, if you then want to really take charge, avail of our financial planning service.
Here you will really take charge and allocate your resources accordingly.
Undoubtedly you’ll be in a position to manage your finances better.
Importantly, through our process, we’ll have you living for today whilst planning for tomorrow and growing your wealth.
Get in touch
To discuss further email us at info@fortitudefp.ie or request a callback.
Alternatively, you can get us on 086 0080 756 or access our diary here and book a call at your convenience.
Why not visit our insights.
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Our blog posts are intended for information purposes only and should not be interpreted as financial advice.
You should always engage the services of a fully qualified financial planner before entering any financial contract.
To discuss engaging the services of Fortitude Financial Planning please email us at info@fortitudefp.ie.
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