Kolkata, February 5: Even as we analyse the Union Budget and what it means to us, it is important to remember that just as India or any other country needs a budget, each one of us do so too. Without a budget, you will have no idea where your money is going and you cannot plan your finances. Here are five reasons why you must have a budget:
It helps you live within your means: Your expenses need to be less than your income. If it is more, you will face a financial crunch every month. Even if it is equal, you do not end up saving any money. But there are so many ways you may end up spending money. A high-end gadget bought on credit card EMI or impulse shopping are some of these. You can spend on these, but only so much. Spending beyond your means or spending money you do not have, especially through a credit card is a recipe for disaster. If you create a budget and stick to it, you can avoid this.
Know where your money is going: Most of us work all through the month for a single paycheck. For this reason it is rightly called hard-earned money. Having a budget ensures that you know where the money is being spent. If you have been spending a considerable portion of your income eating out or buying clothes or anything else, a budget tells you where the money is going. So, if required, you can take steps to spend less money on these things and put the money elsewhere.
You are prepared for an emergency: As we saw, the only way to have a surplus is to spend less than you earn. This can save you during emergencies like a job loss, a medical emergency like an unexpected illness. Emergencies come without any prior warning and it is harder if you do not have the monetary cushion. So your budget should have a surplus that goes into creating an emergency fund of six months of your expenses. If you have used up any of it, you should make it a top priority to rebuild your emergency fund.
It helps you lead a happier retired life: Retirement may seem far away but a day will come when you will stop earning but your expenses will continue. The only way to prepare for that is so build a retirement corpus. The only way to build one is to invest money on a regular basis. Remember, retirement is one of the goals that you are saving for. You might want to buy a house or plan for the higher education of your kids. Having a budget is the only way to ensure that you have enough money that will work for your goals.
It helps you manage debt better: If you have any kind of debt, especially credit card debt or personal loans, you are servicing a high cost debt. Not being able to pay this debt can further push you into a debt trap. To get out of debt, you need to pay existing debt and also not take on any new debt. To be able to do so, having a budget is crucial.
To sum up, having a budget means you can go to sleep peacefully at night. And these are just a few reasons you need a budget. If you do not have a budget, make one now.