If you’re earning a steady paycheck and can afford the things you desire in life, you probably are asking yourself why you need to set a monthly budget. People who live paycheck to paycheck set budgets because otherwise they would run out of money (quite literally!), but what value is a monthly budget to the rest of us?
The reality is that we all have expenses that can quickly get away from us. You need to think about your future; you can’t simply spend like there’s no tomorrow. Whether you’re ready for it or not, tomorrow is right around the corner, and the last thing you want to do is to put yourself and your loved ones into financial peril because you couldn’t manage to stick to a budget. Let’s dig deeper into the reasons that you absolutely need a monthly budget, no matter how financially secure you may be feeling today:
Here’s why you need to set a monthly expense plan.
- Most of us have enormous expenses: If we’re fortunate enough to have purchased a house, and raised kids who seek to matriculate to a four-year college, and made plans to retire in our 50s, we’re actually deep in debt, even if we don’t think of it that way. The average U.S. mortgage debt, for example, stands at $155,361. The cost to send a student to a four-year college averages $23,410 per year – and that’s to attend public school! And you certainly want to live comfortably in retirement; you’ve earned it, after all.
- You need to expose how much you’re really spending: It’s easy to use plastic to make purchases, and it’s equally easy to pay off a credit card bill when there’s cash is sitting in your bank account. But why do you want to let your ability to pay for your lifestyle dictate your willingness to pay for this lifestyle? You are much better off if you know exactly how much you’re really spending, so you can have frank conversations with yourself and loved ones about where your financial priorities should lie.
- Your income will drop eventually: Unless you are planning to work full time until the day you die, you aren’t going to always make the same income you do now. Thus, by creating a budget now, you’re setting yourself up to understand how much your lifestyle costs you, so that you can plan more accurately for your retirement years. You deserve to live the final years of your life without stressing over money.
- You can pre-allocate for recurring big-ticket expenses: Americans tend to feel financially stressed after they’ve paid all of their bills, and more free-wheeling after they’ve received a paycheck or other cash infusion. In reality, we should be feeling neither of these things; we should be thinking of our income in a much more long-term fashion. The key is to set up a monthly budget that pre-allocates money to pay for recurring, big-ticket expenses. For example, we might have huge outflows of cash during the holidays, when property taxes are due, and when our children’s college tuition bill comes due. Rather than feel financially stressed during those months, we can build a monthly budget in which we pre-allocate funds each month to pay for those big expenses before they come due.
When you invest in creating a monthly budget for yourself and start to see results, you’ll feel so empowered and financially secure that you’ll wonder how you ever survived without it. Remember, with a monthly budget, you’ll be able to get a true sense of your debts and how much you’re really spending, plan for the day that your income drops off precipitously, and pre-allocate money to pay for your big-ticket expenses.
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Q: Why is creating a monthly budget important for financial stability?
A: Creating a monthly budget helps individuals track their income and expenses, identify areas for savings, and ensure that they are living within their means, which is crucial for financial stability.
Q: What are the key steps to creating an effective monthly budget?
A: The key steps include tracking income and expenses, setting financial goals, categorizing expenses, creating a realistic budget, and regularly reviewing and adjusting the budget as needed.
Q: How can budgeting impact wealth-building and long-term financial goals?
A: Budgeting plays a significant role in wealth-building by allowing individuals to allocate funds for savings, investments, and debt reduction. It helps them make informed financial decisions and work toward achieving their long-term financial goals.