Why Is it Important to Budget Your Money?


A budget is like a roadmap of your finances. It will show you how much you have to spend and how to need to spend it. Budgets are simple to create and have positive benefits to your finances, your emotional well-being and your future.

Financial Benefits

Creating and sticking to a budget will keep you living within your means and make you less likely to accumulate debt by using a credit card to bridge the gap between paychecks. By not accumulating credit card debt, you save on interest charges. Creating a budget will help you stop overspending in your checking account, which will eliminate overdraft charges. Budgeting can also remind you when bills are due, and eliminate late fees by paying them on time.

Benefits to Your Credit Score

Paying your bills on time and keeping your overall debt low has the largest impact on your credit score. According to Smart Money, 35 percent of your credit score comes from your payment history and 30 percent comes from your overall credit utilization. If you include credit card payments in your monthly budget, you can have enough money to cover the payments when the bills are due. This way, you can slowly work down your debt and build a record of timely payments. Sticking to a budget in the future will help you keep your overall debt low, which will also improve your credit score.

Emotional Benefits

Without a proper budget in place, you may find yourself short of cash, unable to pay all of your bills, living paycheck-to-paycheck, or unable to save for an emergency fund. Not managing your money can cause you to accumulate debt, your credit score will suffer, and you may end up being unable to handle unexpected events like a job loss, sudden illness or family emergency. All of these consequences can cause heavy emotional strain and may lead to large amounts of stress, feelings of helplessness or anxiety. Creating a budget will eliminate the stress and make you more financially secure.

Preparing for the Future

A budget is the simplest way to meet your financial goals, whether you want to create an emergency fund, build up the down payment for a house or save for retirement. By creating a budget, you can tell how much income you have left over each month that you can put toward your savings goal. A budget will also show you how long it will take to achieve your goal if you continue to save the same amount each month.

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