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Tuesday, August 2, 2011

Why Budgeting is an Important Exercise?

Have you ever thought about the importance of budgeting to help you get ahead financially? Managing your money is one of the first steps to attaining financial success.

Let us understand why Budgeting is an important exercise...

1. The Importance of Budgeting For Putting You In Control Of Your Spending

When you take the time to create and follow a budget, you begin to see where your money goes each month. Armed with that knowledge you can cut back on some of those wasteful spending habits and free up money to start moving towards your goals.

2. The Importance of Budgeting To Help You Reach Financial Goals

When you follow a budget, you can allocate money to reaching your financial goals. Maybe you want to save for things like retirement, or a down payment on a house? Or perhaps you want to start saving money to start that business you've been dreaming of? When you follow a budget, you have a plan to get to where you want to go, and your chances of reaching your goals are increased exponentially.

3. The Importance of Budgeting to Prepare You For Future Wealth

If you're always running out of money with your current income, chances are you'll have the same problem even if you earn more. Statistically, the more money you earn, the more money you'll spend. If you don't learn to manage what you have now, earning more money likely won't solve the problem.

Don't be fooled by appearances. Many of those high income earners are broke. All of their income is going to pay for their big mortgage, the credit card bills, and the car loans for the luxury cars. They're just broke at a different level.

4. The Importance of Budgeting To Teach you Discipline

Wealthy people understand the importance of managing their money. They exercise self-discipline and they save up for purchases and earn interest on their savings while they do it. Broke people tend to go for instant gratification and buy things on credit. Often whatever they buy ends up costing them twice as much by the time they finish paying for the credit card bill.

In the long run, saving up for purchases will actually allow you to buy twice as much stuff compared to buying with credit. Or you can have the same amount of stuff, plus a big investment account on the side with all the money you save by not paying interest on debt.

Conclusion

Over the years of working in the financial industry we have met a lot of low income earners that had higher net worths than many doctors and lawyers. This is simply because they managed their money well and allocated a portion each month to go into long term savings or investments.

Budgeting is the basic building block of financial success. When you can manage your money successfully, you can allocate money to reach future financial goals. You're also learning important money habits that will serve you well for your entire life - no matter how much you're earning.