Money makes the world go round. We use the money for so many reasons. And a lot of these reasons can lead us to overspend. From online shopping, eating out or splurging on expensive coffee – whatever the reason is, you need to be mindful of your spending habit.
If you are fond of using your credit card and miss paying your monthly bill, expect to pay late charges and get a lower credit score. Moreover, if you ignore bank collection, the card can be frozen, your account endorsed to a collection agency and your wages or properties garnished.
Of course, you don’t want your debt to haunt you for years. Before your spending routine or obligations get out of control, you should manage your money well through budgeting.
What is a budget, and how it works?
A budget is a financial estimation of your earnings and spending for a specific period. Anyone who makes and spends money should live with a budget to manage the monthly expenses, save funds for emergencies, and buy high-ticket items without incurring debt.
You don’t have to be good in numbers to make the best budget. You need to estimate your expected earnings and decide how much to spend on food, housing, bank loans, insurance, etc.
A reasonable budget also reserves funds for regular savings by using this formula: Income – Savings = Expenses. This principle will help you develop the discipline to save first before spending. You will learn to work around with what you have while the rest is safely tucked away in your savings account.
In essence, a budget serves as a guide towards a particular financial goal. Without one, you’ll most likely find yourself in a bad financial shape with collection letters coming in, left and right.
There’s no one-size-fits-all formula in creating a budget. You will likely choose an approach that is most comfortable with your skills and financial goals. Budgeting apps such as Mint and YNAB are a good starting point to carve out your financial journey.
Why using a budget is essential?
Now is the time to tighten our financial belts. Due to the pandemic, which resulted in an economic slowdown, many Filipinos lost their job. Low-income families have to depend on the government’s financial help to survive the daily grind.
With a meager cash allowance and many household essentials to purchase, a budget will save the day; to monitor where the money goes and how many days will make it last. So, that at the end of the day, we still have enough to tide us over the next cash dole-out
Here are some of the benefits that creating a budget is a wise decision, regardless of your financial situation:
1. Helps manage or avoid debt
Spending more than what we can bring to the table is one of the culprits why many struggles to pay hefty interest charges on credit card accounts.
The basic budgeting approach is making sure your monthly expenses don’t exceed your monthly earnings.
You must make paying your outstanding credit card balance your top priority. Suppose you have multiple credit cards with different outstanding balances. In that case, you should consolidate them in one portfolio to pay off the balance quicker. To know more about debt consolidation, please click here.
2. Supports financial goals
Are you saving money for a down payment on a car next year? Or a down payment for your dream house in the next five years? A budget is essential in determining how much of your income goes to your savings to achieve those goals.
A budget is also a way of living a modest lifestyle. A familiar phrase, “live within your means”, rings very accurate in this regard, which means we should cut down on eating out at expensive restaurants or settling for a cheaper cable subscription.
3. Serves as a fallback during emergencies
Managing your money can pay in the long run. You are secured knowing that the next time the car runs into trouble, the roof gets a leak, or in worst cases, you lose your job, an emergency fund can save the day.
4. Provides total control of your own money
The process of making a budget empowers individuals with discipline and motivation to take control of their finances. Monitoring actual expenses vis-à-vis the budget give you the freedom to adjust your figures or cut down on your costs so that you stay on track.
5. Helps monitor where the money goes
Budgeting saves you from thinking every month about where your money went. You know how much money is coming in, how long it goes out and where it is going. Thus, giving you an idea of what you can afford, determine how to take advantage of purchasing and investing opportunities, and allocate funds to pay off your debt.
Final Thoughts
You need to manage your finances to be financially healthy.
There are budgeting apps that you can use to guide you on how to create an adequate budget. Choose the option following your needs and goals.
If paying higher interest rates because of too many credit card balances get a lion share of your earnings, then debt consolidation is the best option.
Budgeting will enable you to control your money, helps you achieve your financial goals and keeps your spending habits in check.
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I love saving up. It helps you have an emergency fund when there is an unfortunate circumstances. It really helps!
I definitely agree with your points here. When I am not aware about the financial freedom before, I used to just buy and buy but luckily now I am no longer into it. This is a great read and thank for spreading awareness.
Having a budget has so many benefits. Thanks for reminding us. We may be already know all of these but we all need reminders
Having a budget is very important. This guides everything such as your spending and your savings
This is so helpful! I'm trying to pay off my debt by the end of the year and start increasing my savings!
I really want to work on my finances and control my spendings. Thanks for the reminder
Having a budget helped me a lot in managing my debt.
Yes! Controlling spending and more saving is so importnant. I have never been in debt. I like to spend but I defintiely make sure to save. These are great tips.
Great tips! It will help a lot to avoid and be able to pay debts if we start saving and don't spend a lot.
Budgeting has been a godsend for us. Ever since we started controlling our spending, we have finally been able to start saving.
Budgeting has been a godsend for us. Ever since we started controlling our spending, we have finally been able to start saving.
I do this a lot and I'm proud to say that I'm frugal. I think that helps me manage my finances well.
These are very useful saving tips.. Personally, i always set my budget every beginning of each month and i put them all in my log and list down all my expenses and also save budget for any possible unexpected expenses. Thank you for sharing these
Great advice and sorely needed today for me. We're trying to save for a second car and it's just not happening with how high inflation has gotten lately.
You have a great point…."you need to manage your finances to be financially healthy". Many of us, unfortunately don't realise this until we are too deep in debt! Thanks for sharing.
When our spending is under control we no longer have the leak in our accounts. It is a great step forward.
We really try to curb wants as much as we can! Awesome tips!
Debt is the worst. I took negative equity on my car and knew not to do it. I did it anyway and it stinks.