Welcome to Credit Tip Tuesday #10.
Budgeting can be a daunting task, especially if you have not done it before and don’t know where to begin. However, it is a key part of building and maintaining a strong credit score and financial security. A budget is a plan on how to spend your money while balancing your expenses with your income. Here are five reasons you should create and stick to a budget:
- It helps ensure you don’t spend money you don’t have.
- It helps prioritize financial goals.
- It helps shed light on spending habits.
- It helps prepare you for emergencies.
- It helps you save money and get out of debt.
- It helps ensure you don’t spend money you don’t have.
Paying with credit or digital solutions is convenient and efficient, but it also makes it easy to spend more than you have. It’s easier to track how much you’ve spent when you work in paper bills and metal coins!
Having a budget helps prevent you from being in this situation. You’ll know exactly how much you earn, how much is left after expenses, how much to save and how much is left over for everything else. It also helps you prioritize what expenses you need to pay for first, ensuring that you budget for essential items like rent, utilities etc.
- It helps prioritize financial goals.
Knowing how much to save requires you to figure out your short and long-term goals. A budget helps map out how you will save money to make your dreams a reality. It might be disappointing that a new video game or pair of shoes is out of budget, but it is easier when you remember that the money is going towards a trip or a car.
- It helps shed light on spending habits.
Did you know if you buy a $2.50 coffee every business day, you’re spending over $650 a year? Budgeting forces you to examine your spending habits and helps identify areas of savings that will help you reach your goals. It can also remind you about monthly subscriptions such as extended cable plans or memberships that you forget about. These extra expenses can add up to quite a bit at the end of the year. Proper budgeting can help you identify them and save that money for high priority items that can improve your financial well-being.
- It helps prepare you for emergencies.
Life is full of all sorts of surprises, from car repairs to being laid off to going through a divorce. They also always seem to happen at the worst possible time – when you’re already stressed about your finances. Budgets should always include an emergency fund that would cover 3-6 months of your living expenses. Having this extra money set aside gives peace of mind and ensures you get through the tough period. Building up the fund takes time! Start with a realistic goal, even $10 a week, and your emergency fund will slowly grow.
- It helps you save money and get out of debt.
With a clear understanding of your income and expenses, it is easy to identify where you can save. By being thoughtful about your purchases, you reduce the chance of overspending. There could be a time that you find yourself in significant debt. This can be very stressful for your financial & physical health as well as your relationships. If you find yourself in debt consider using a company like 4 Pillars Consulting. Having a budget creates a gameplan for you to address this debt. Ultimately, it ensures you can achieve your goals and stay debt free!
Download our Plastk app on IOS or Android & sign up for the Plastk Secured Credit Card to get our ‘My Budget’ tool. This helps you track spend and understand your spending habits.
Disclaimer: The content provided on the Plastk Financial Inc. Blog is information to help Canadians become financially literate and learn about credit. Plastk is not responsible for building or ruining an individual's credit score or credit rating. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment, credit inquiries, and all other decisions should be made, as appropriate, only with guidance from a qualified professional.
