A budget plan is a document that outlines what income you receive and what you spend your money on. In essence, it’s a roadmap that details where you’ve been and where you are going with your finances.
By creating a budget plan you can get a better view of where your money goes. Having such a view then allows you to control where your money goes. This, in turn, helps you to save, invest or pay off debt at a faster rate.
Anyone can reap benefits from keeping a budget plan.
I was able to pay off $5000 of debt in just 6 weeks by creating a family budget and sticking to it.
There are many advantages to creating a budget plan.
Know where your money is going
You’ll get a clear view of where your money is going straight-away if you set up a budget correctly.
You should backdate income and expenses for three months or more to give a clear view of where your money has gone.
Backdating in your budget delivers immediate value. You’ll see exactly where your money has been going for the period you backdate to. I can guarantee you’ll have one or two surprises when you see where your money has been going!
Immediate insight into the future of your finances
The budget plan gives you a roadmap for the upcoming weeks. Running a budget planner like a cash flow sheet, as I do, will show you the impacts you can make adjustments. This makes it so much easier to set goals and find out what it takes to hit them.
Understand your spending habits
As you commit to maintaining a budget plan you’ll start to see your spending habits.
These insights will help you understand some of your habits that may be costing you more than you think.
For example, I had no idea I was spending $1,200 a year by picking up a coffee on the way to work each morning. Granted, we all need our little vices to maintain our sanity. But, when you need to pay off debt fast, adjusting spending, even for a while, helps tremendously.
You may also notice impulse spending on larger items. Do you have a problem keeping your credit card in your pocket at the furniture store? Maybe your weakness is overspending at the grocery store on comfort items. Seeing patterns highlights the need to make changes. Avoid the furniture store, do grocery shopping online and shop frugally.
I prefer to spend 10 minutes every Sunday adjusting my budget each week. This regularity makes it a fast and easy task. I also have the ability to react quicker if I find I’m spending on items I shouldn’t.
Cut out spending on stupid things
We all find some regular expenses such as subscriptions, morning coffee or Friday beers after work in our budgets. But, there is often the silly expenses we encounter for immediate gratification or through lack of planning.
You might make a few small purchases, a chocolate bar, coffee, a magazine. These are all small incidental amounts that go unnoticed by your subconscious. When grouped together these purchases start to add up. As you categorise these expenses in your budget, you realise you blew over $100 on stupid stuff you didn’t need.
That $100 may be the difference between hitting a goal and not.
In the case where you’re paying down debt, it’s costing you.
If you manage your budget plan each week you can see these habits that go unnoticed and start to take corrective action faster. If you want to pay off debt fast or save money fast it’s essential to get this insight.
Set financial goals
The insights into where your finances are heading will help you set financial goals. Even if your financial goals are a stretch, your budget will inform you what it will take to hit your goal.
For example, you may want to save $5000 over the course of a year. You’ll need to save around $100 a week, but your budget currently shows a deficit each week. That is, you have more money going out each week than you have coming in.
You’re better placed to start playing with your figures each week. Making adjustments to your future spending in your budget will help you work out where you need to make cuts.
Look for ways to cut down your bills or reduce your grocery budget. Maybe you need to raise your income, get a second part-time job. Find ways to earn an extra $50-100 a week. A budget plan will empower you to tweak numbers and make decisions.
But then you can start to adjust your future spending. Look for ways to cut down your bills, reduce your grocery budget by finding cheap meals and shopping to the recipe. Find ways to earn an extra $50-100 a week.
Keeps you focussed
You can concentrate on more important things by putting a budget plan in place to track your finances.
A budget plan keeps you in the know on where your personal finances are at you can stay focussed on your goals.
You’ll be free to make faster decisions about your finances by knowing where you are heading.
If any unexpected expenses come along your budget will help you navigate this with ease. Enter your unexpected expense into your budget and make modifications to the rest of your expenses to keep on track.
If your unexpected expense is large you’ll be able to spread the impact over a number of months. The point is, you’ll know exactly where you stand and what it takes to get back on track.
Taking away the pressures of not knowing where your money is going helps you look to the future. You’ll step toward your financial goals faster with a budget.
I can tell you from experience seeing faster results is incredibly motivating. As the effects of changing your spending habits become clear you’ll feel inspired to work harder. As you pay off debt faster, you’ll find yourself bolstering your efforts. You’ll become more conscious of your money management every day.
A budget is an essential tool to helping you gain an understanding of where your money is going. More importantly, it helps you to control where that money goes. Once you have this control you’ll be able to set financial goals. That could be to pay off debt fast, save for something special or to build up investments. Committing yourself to updating a budget on a regular basis helps you track your progress and keep on course with your goals.
My next post is going to tell you how to set up a budget planner spreadsheet. If you want to learn how to do that then please join my mailing list and I’ll let you know when that post is published.
Visit my post about how to set up a budget planner spreadsheet to learn how to do that. In that post I’ll explain to you how you can get a copy of the spreadsheet I use on Google Docs for free.