These are cliches concerning money and most are true. Cliches are sayings that become cliche because there's a truth behind them.
- "A fool and his money are soon parted."
- "A penny saved is a penny earned."
- "Save for a rainy day."
All of these are true. But here's one that all people should choose as a mantra.
- "Live within your means."
It means, quite simply, that you have to spend less than you take in. Creating a budget is easy. It's simple math. But for many people, creating and sticking to a budget are difficult at best.
There are several ways to do it. Some use a percentage basis, where each expense is allowed a certain percentage of income. Some even go so far as to put money in envelopes each month and pay from envelopes, but that's extreme, yet very effective. Dave Ramsey has several budget systems, including one where you put money in envelopes, if you truly want to see where your money goes each month.
Creating and sticking to a budget is an essential life skill they should teach in high school. It requires taking a hard look at your Credit0 situation, being disciplined, and making it part of your everyday life. It should become ingrained.
Seven Reasons Why Budgeting Is Important
1. It gives you peace of mind.
When you have the ability to quit living paycheck to paycheck, it is a great burden off your mind. You relax. You spend less time worrying about what's going on, which allows you to focus on work, family and enjoying life. When you have money worries, it is easy for other things to suffer.
2. It helps you manage your Credit7 or stay out of Credit7.
As a rule, Americans carry too much personal Credit7. Sticking to a budget enables you to control spending, which means that if a need arises, you have the funds available or the skills to meet the need head on.
3. It helps you save money.
When you have a handle on your expenses, you get to save. In fact, saving should be the first thing you do when you establish your budget. Set aside somewhere between five and ten percent to save. Within your savings, you can create a mini-budget that includes
- Retirement
- College Fund
- Vacation
- New Car
- Second Home
4. It helps you in emergencies.
Car repairs, house repairs, an emergency room visit... all of these qualify as "emergencies." Paying for these things are often done on credit cards, which in turn adds strain to monthly payments. The emergency fund also covers job loss or temporary reduction in income, so the fund will be quite substantial... about three months worth of monthly expenditures.
Warning: Emergencies are things that will significantly alter your life or your ability to maintain necessary parts of your life. Medical, transportation, home... if something disastrous happens, you dip into the fund. Buying a new car is not an emergency; fixing one is if it means the difference between getting to work or not.
5. It helps you control spending
Many people are in a situation where it is too easy to spend money. They don't actually have to have cash. It makes it easy to lose track of where the money is going and they get themselves into a bad situation.
If you know exactly how much is coming in, you know exactly how much is going out. If you add up all the small expenses, sometimes you find that those things you don't really need cost more than the things you do need. Prime example: Eating lunch out of the office averages $8 a day. A cup of coffee at a gourmet shop is about $3.50. If you bring lunch from home, not only is it better for you, but at roughly $2 per meal it saves $120 a month. A $10 can of coffee will last for a month, versus the $70 a month for habitual gourmet coffee shop patrons.
At the instance we make the purchase, we don't think much about it. But those things add up over a month and can be quite surprising. Once you get into the habit of saving receipts and tracking all expenditures, it's easier to see how they add up. One way to help control spending mentioned previously is the envelope system, made popular by radio personality Dave Ramsey.
6. It helps you build a credit rating
Although Dave Ramsey has been mentioned previously in this article, and he makes a lot of sense, one place where he diverges from real life is in his appeal that you shouldn't worry about your credit rating because you'll be paying cash for everything. Easy enough to do if you're a nationally syndicated radio host, have written best-sellers and people pay forty bucks to listen to you talk for two hours.(Apologies to Dave; I still listen to the show.)
In the real world, people finance their houses and sometimes, their vehicles (but they shouldn't do... ever!) A good credit rating helps you save money on your mortgage and these days, potential employers are even pulling credit reports when considering you for a position. Yes, it happens when you sign the document that says they can do a background check.
A better credit rating means you could be charge 1/2 of one percent difference on your mortgage. On the average, on a $150,000 house, the difference between 5.5% and 6% is about $50 a month. Doesn't seem like much, does it? Works out to $600 a year. That kind of sounds like "real money" now. Over the course of a mortgage, that's $18,000.
There are other savings, too, such as saving on mortgage insurance, and programs vary from lender to lender, but it paints a picture. So having a good credit rating saves you money by allowing banks to offer you better percentage rates because you're a good risk.
7. It helps you teach kids about money
Money Counseling5 skills are an essential part of life, and the more your kids know about it, the more successful they will be. Only recently have schools been teaching these skills, but kids need to see it in practical use. If the knowledge is ingrained as part of their everyday life, they will be more likely to adhere to a budget.
These are cliches concerning money and most are true. Cliches are sayings that become cliche because there's a truth behind them.
- "A fool and his money are soon parted."
- "A penny saved is a penny earned."
- "Save for a rainy day."
All of these are true. But here's one that all people should choose as a mantra.
- "Live within your means."
It means, quite simply, that you have to spend less than you take in. Creating a budget is easy. It's simple math. But for many people, creating and sticking to a budget are difficult at best.
There are several ways to do it. Some use a percentage basis, where each expense is allowed a certain percentage of income. Some even go so far as to put money in envelopes each month and pay from envelopes, but that's extreme, yet very effective. Dave Ramsey has several budget systems, including one where you put money in envelopes, if you truly want to see where your money goes each month.
Creating and sticking to a budget is an essential life skill they should teach in high school. It requires taking a hard look at your Credit0 situation, being disciplined, and making it part of your everyday life. It should become ingrained.
Seven Reasons Why Budgeting Is Important
1. It gives you peace of mind.
When you have the ability to quit living paycheck to paycheck, it is a great burden off your mind. You relax. You spend less time worrying about what's going on, which allows you to focus on work, family and enjoying life. When you have money worries, it is easy for other things to suffer.
2. It helps you manage your Credit7 or stay out of Credit7.
As a rule, Americans carry too much personal Credit7. Sticking to a budget enables you to control spending, which means that if a need arises, you have the funds available or the skills to meet the need head on.
3. It helps you save money.
When you have a handle on your expenses, you get to save. In fact, saving should be the first thing you do when you establish your budget. Set aside somewhere between five and ten percent to save. Within your savings, you can create a mini-budget that includes
- Retirement
- College Fund
- Vacation
- New Car
- Second Home
4. It helps you in emergencies.
Car repairs, house repairs, an emergency room visit... all of these qualify as "emergencies." Paying for these things are often done on credit cards, which in turn adds strain to monthly payments. The emergency fund also covers job loss or temporary reduction in income, so the fund will be quite substantial... about three months worth of monthly expenditures.
Warning: Emergencies are things that will significantly alter your life or your ability to maintain necessary parts of your life. Medical, transportation, home... if something disastrous happens, you dip into the fund. Buying a new car is not an emergency; fixing one is if it means the difference between getting to work or not.
5. It helps you control spending
Many people are in a situation where it is too easy to spend money. They don't actually have to have cash. It makes it easy to lose track of where the money is going and they get themselves into a bad situation.
If you know exactly how much is coming in, you know exactly how much is going out. If you add up all the small expenses, sometimes you find that those things you don't really need cost more than the things you do need. Prime example: Eating lunch out of the office averages $8 a day. A cup of coffee at a gourmet shop is about $3.50. If you bring lunch from home, not only is it better for you, but at roughly $2 per meal it saves $120 a month. A $10 can of coffee will last for a month, versus the $70 a month for habitual gourmet coffee shop patrons.
At the instance we make the purchase, we don't think much about it. But those things add up over a month and can be quite surprising. Once you get into the habit of saving receipts and tracking all expenditures, it's easier to see how they add up. One way to help control spending mentioned previously is the envelope system, made popular by radio personality Dave Ramsey.
6. It helps you build a credit rating
Although Dave Ramsey has been mentioned previously in this article, and he makes a lot of sense, one place where he diverges from real life is in his appeal that you shouldn't worry about your credit rating because you'll be paying cash for everything. Easy enough to do if you're a nationally syndicated radio host, have written best-sellers and people pay forty bucks to listen to you talk for two hours.(Apologies to Dave; I still listen to the show.)
In the real world, people finance their houses and sometimes, their vehicles (but they shouldn't do... ever!) A good credit rating helps you save money on your mortgage and these days, potential employers are even pulling credit reports when considering you for a position. Yes, it happens when you sign the document that says they can do a background check.
A better credit rating means you could be charge 1/2 of one percent difference on your mortgage. On the average, on a $150,000 house, the difference between 5.5% and 6% is about $50 a month. Doesn't seem like much, does it? Works out to $600 a year. That kind of sounds like "real money" now. Over the course of a mortgage, that's $18,000.
There are other savings, too, such as saving on mortgage insurance, and programs vary from lender to lender, but it paints a picture. So having a good credit rating saves you money by allowing banks to offer you better percentage rates because you're a good risk.
7. It helps you teach kids about money
Money Counseling5 skills are an essential part of life, and the more your kids know about it, the more successful they will be. Only recently have schools been teaching these skills, but kids need to see it in practical use. If the knowledge is ingrained as part of their everyday life, they will be more likely to adhere to a budget.
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