A budget (spending plan) is an outline of anticipated income and expenses that can be used to track actual cash flow and set spending goals.
A budget is an important financial tool that can help you in 5 major ways:
A. Plan for Expenses
Short-term expenses happen in the next month, mid-term expenses occur in between one month and a year and long-term expenses are longer than twelve months.
B. Cut Spending
A budget shows you just how much money you’re spending on certain things.
When you see this, you might have an incentive to cut spending on certain things.
C. Spend Wisely
If you are spending more than you earn, something will have to change.
You will have to earn more, spend less, or a combination of the two.
D. Save for Future Goals
Help you “find” the money to set aside for future expenses.
With a budget, you can identify areas of extra spending and reallocate that money towards a future goal.
E. Develop Lifelong Money Management Skills
It is priceless to learn how to save for a goal.
This is not as simple as setting aside a certain amount of money every month or week.
It usually involves making spending choices, and prioritizing savings over wants.