Why Should I Make a Budget?

By: Diane Cossie

You say you know where your money goes and you do not need it all written down to keep up with it? I issue you this challenge. Keep track of every penny you spend for one month and I do mean every penny. Make sure each member of your household is equipped with a notebook and pen and has to be accountable for every penny spent for one month.

You will be shocked at what the itty-bitty expenses add up to. Take the total you spent on just one unnecessary item for the month, multiply it by 12 for months in a year and multiply the result by 5 to represent 5 years.

That is how much you could have saved AND drawn interest on in just five years. That, my friend, is the very reason all of us need a budget. Budgets sound a bit like diets, but they do not have to be so restrictive that you do not enjoy yourself at times when you want to, the difference is you have budgeted for that reward not just grabbed it in quick gratification or without thought to the consequences.

If we can get control of the small expenses that really do not matter to the overall scheme of our lives, we can enjoy financial success. There is something that is often referred to as the latte effect. It offers you the mathematical outcome of investing just $2.50 a day ( instead of buying a latte and muffin ) over the next 25 years. That $2.50 per day invested would have grown to approximately $78,000 over that period of time.

The little things really do count. Cutting what you spend on lunch from five dollars a day to three dollars a day on every work day in a five day work week saves $10 a week, $40 a month, $480 a year, $2400 in five years plus interest.

See what I mean, it really IS the little things and you still eat lunch everyday AND that was only one place to save money in your daily living without doing without one thing you really need. There are a lot of places to cut expenses if you look for them. This formula can become as powerful as giving yourself a pay rise each and every month.

Set some specific long term and short term goals. There are no wrong answers here. If it is important to you, then it is important period. Habits formed now through understanding how to budget your money effectively will mean that you can start to stop all those money leaks and build a solid foundation on which to build financial security.

If you want to be able to make a down payment on a house, start a college fund for your kids, buy a sports car, take a vacation to Aruba, or anything else then that is your goal and your reason to get a handle on your financial situation now. Remember this does not have to be hard work, you will find there is a lot of good information available for you. The important thing is to start right now and do not waste another minute of your most valuable commodity time.

Time plus compound interest on all those little savings can really turn you from average to wealthy in a much shorter time than you probably realise.

Money Management
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