Budgeting is an important step in managing your money and ultimately having more of it to invest in your long-term goals. Once you put together a budget and develop the habit of sticking to it, you’ll see that it’s worth the effort as your debts decrease and your assets accumulate.
Having a budget is one of the best ways to track your finances. It allows you to:
- See where your money goes each month so you can prioritize how to spend and invest it
- Find optional expenses you can reduce to make more room for savings
- Create categories to set money aside for major goals and purchases, such as retirement, a college fund or vacations
Take steps to safeguard yourself against unplanned expenses or financial emergencies by creating an emergency fund. An emergency fund is not designed for nonessential spending. Instead keep a 3 to 6 month cash reserve in case a situation happens where you truly need additional funds.
When you’re living within your means, you’re earning more money than you’re spending, which allows you to save more for your financial goals and provides a cushion in case of emergency. Understanding your cash flow is an important part of living within your means.
Before you set a financial goal, you should know how much money you make after taxes and understand your expenses. This helps you set a reasonable budget so you don’t spend more money than you make and adjust as needed.
