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Don’t underestimate the importance of a budget

Time and time again people throw around the word ‘budget’ like it’s going out of fashion. “Darling of course we can afford to go to Hawaii, we budgeted and have saved money over the past year!” or “After spending money on my new car why wouldn’t I splurge on alloy rims, I sacrificed and budgeted – why be tight now?” I started thinking, and then I started searching. I think the simplest way to summarise what a budget is, is: “A budget is telling your money where to go instead of wondering where it went.” – Dave Ramsey. I personally think that’s very clever, so in saying that let me scribble some points down as to why having a budget is so important. 1. Budgeting doesn’t let you spend money that you do not have. Thanks to colourful plastic cards we all have in our wallets; consumers simply spend money that they don’t have. Let’s be honest in this day and age we seem to overuse and abuse credit cards, and we don’t seem to realize until we are drowning in debt. By creating and sticking to a budget, you’ll never find yourself in this position. You’ll know how much money you earn, how much you can afford to spend each month and how much you need to save. 2. Budgeting sheds light on bad spending habits. Creating a budget forces you to take a closer look at your spending habits. You start to realize that you are spending money on things that you don’t need. For example if you know fuel costs you on average $60 per week, why are you spending $75 at the petrol station? It may be the 2 red bull deal for $5.99, or get another 3 chocolates for another $7. Regardless by pinpointing these habits you are more likely to be conscious of them in the future. Budgeting allows you to rethink your spending habits and re-focus your financial goals. 3. Budgeting helps you keep your eye on the prize. A budget helps you figure out your short/long-term goals, and work towards them. By doing this you are not aimlessly drifting through life, spending your money on anything shiny and pretty. Budgets force you to map out your goals, save money, stay on track, make your dream a reality and more importantly feed your soul with compliments that you have achieved what you ultimately were after. 4. Budgeting helps you prepare for emergencies. Unfortunately we are unable to foresee the future and life has many unexpected surprises, some better than others. When you become sick or injured, go through a divorce, get fired or a death in the family this could lead to some serious financial stress. This is exactly why everyone should have an emergency fund. Your budget should include an emergency fund that consists of at least three to six months worth of living expenses. By doing this, the extra money will ensure that you will be debt free after a life crisis.   Log in or set up a Moneysoft account to make sure your budget is on track, or speak with your financial adviser to make sure that you are getting the most out of your Moneysoft account.