How not having a budget can affect your finances
Author: Sabado Domingo
Source: Len Penzo dot Com
If there is one takeaway from the pandemic, it's the importance of budgeting and financial management. Studies suggest that financial stress is at an all-time high. A number of factors can cause financial stress. However, without the right solutions and coping strategies, one can go into debt. The good news is, by devoting a little time to planning your budget, your finances can take a turn for the better.
Consequences of not having a budget
If you neglect your budget, there will be consequences. Here are four budgeting mistakes you should avoid:
Losing track of your spending. We're all guilty of treating ourselves too much. The purpose of creating a budget is to track where your money is going and where there is scope for spending less. If you don't stick to a budget, you are at risk of spending more than you can afford, leading to poor decisions and debt.
Poor credit score. In these modern times, it is crucial to maintain a good credit score. However, overspending can rack up your credit card bills and send your credit score plunging. Without a proper budget, you will be at risk of spending more than you can afford and damaging your credit score.
Falling short on savings. Savings are necessary for reaching milestones in one's life. A milestone can be buying your dream house, paying off student debt, saving for early retirement, and so on. But, if you have no idea where your money is going, you will fall short on savings and never reach your milestones.
Increased chances of landing in debt. The last thing anyone wants is to land in debt. Not following a strict budget increases one's chance of plummeting credit card bills and taking loans to repay that. This can set you off into a vicious cycle of debt trap that can seem never-ending.
To avoid these careless budgeting mistakes, one needs to realize that budget is important for finance. With that in mind, here's a beginner's guide to saving:
A beginner's guide to budgeting and money management
Budgeting is the process of creating a money spending plan. Creating a budget allows one to make smart choices when handling money and to determine in advance whether you have enough money to do the things you want to; as a result, it ensures that you'll always have money when you need it.
Following a budget also helps young people stay out of debt or work their way out of current debts.
With that in mind, here are two easy ways in which you can gain control of your money:
1. Create a budget spreadsheet
Of course, the easiest way to keep track of your finances is via a detailed budget spreadsheet. Include categories such as savings, monthly bills, grocery, rent, student loans, entertainment, etc. Then you can enter the amount you can afford to spend on each category. Add up the total and ensure that you are not spending more than you can afford.
The first priority of creating any budget is to be realistic. Therefore, it's important to be sure that you set aside at least a little cash in your budget for fun and entertainment. For example, you can allocate a monthly amount for when you want to gamble online and stick to it. You can also set aside additional expenses for movies, dining out, and other entertainment activities.
2. Form an emergency fund
An emergency fund is like a safety net that helps you reduce financial stress to cover unanticipated expenses. An emergency fund can reduce the financial burden significantly. It gives you the psychological assurance that you are not broke and also prepares you for unexpected problems that may crop up at any point.
If you are not in a position to set aside money, you can consider donating old furniture, books, clothes, etc., or stuff you don't use anymore.
This article was written by Sabado Domingo from Len Penzo dot Com and was legally licensed through the Industry Dive publisher network. Please direct all licensing questions to firstname.lastname@example.org.