Did you get to practice handling money as a kid? Maybe your grandparents took you to the dollar store and gave you a limit to spend on several items. Maybe you were given a few coins to save away in your piggy bank.
The older you got, the more money you were given (or earned at your fast food job!). Soon enough, it seemed that you would always want more money. The piggy bank just wasn’t cutting it…
But did you know that those early choices you made with money would serve you better than any raise?
Healthy money habits are key whether you have one dollar or a million. It’s been shown time and time again that anyone can blow a huge amount of money in record time, but those with minimal income can still build wealth if they stick to some key financial habits.
Budgeting is one of the most underrated keys to financial success, and it’s vital for anyone who makes an income! I’m here to tell you budgeting is more important than income level. That’s right!
Your financial success isn’t always reflected in dollar bills, it’s predicted by healthy money habits you practice on the regular, in the form of a budget.
Here are 6 reasons why everyone should have a budget:
Budgets help you live within your means
When you’re creating a budget, it’s important to remember to balance your expenses and income, and try to live within your current “means.”
This might seem simple, but trust me, it’s easier said than done. Add up all of your expenses, and compare this to your income. If you have some leftover income, budget in expenses that are less pressing (entertainment, eating out, etc.).
Many of us go wrong in this arena – we spend too much of our income on these unpredictable expenses, and end up living above our means.
Before I went through all my expenses and created a budget, I was living well above my means. I didn’t have a concept of how much money I could spend in a month on certain items, and so I way overspent in the area of groceries and clothing.
Once I understood how much I could spend on these items, I was able to live within my means.
Speaking of living within your means, Nicolas Cage isn’t just on every meme and sequin pillow you’ve seen lately – the actor is among those celebrities that have filed for bankruptcy due to living above his means.
How did this happen to one of Hollywood’s highest paid actors? Well, he really just had some bad spending habits that led to a complete depletion of his money. He went on some spending sprees to buy items that he definitely didn’t need (think sharks) and somehow ended up without his hard-earned fortune.
It seems impossible to live “above” such high means, but Cage managed to do it.
In the end, it really doesn’t matter what your income level is, it’s all about living within your own means, whether you’re a millionaire or a middle class hustler like the rest of us.
Budgets help you have fun
This doesn’t mean that budgeting is going to become your favorite pastime. Although you might grow to love the amazing things it does for your financial situation…
It’s key to realize that you should plan for a portion of your income to be used on recreational spending! Yes – you heard that right – have fun with your money! The concept behind this recommendation is that you will inevitably spend money on eating out, seeing a movie, and buying road trip snacks.
So why not plan for these purchases and remove the guilt when you’re buying them?
Of course, make sure your budget reflects your actual income as we talked about earlier. Your recreational budget should fit within the grander scope of what you actually make. An appropriate fun budget for Nicolas Cage might have included one shark, and he went a little crazy and bought an octopus as well.
Your fun budget might cap at two nights out a month, and anything above that could put you spending more than you should. See what you can afford within your current income, and plan your fun budget from there!
Once I began budgeting for fun, it was a game changer for my relationship with money. I could spend within my budget on fun experiences and items, and feel like I was accomplishing a financial goal!
I no longer felt uncertainty and even guilt when having fun with my money.
Budgets help you invest
It’s always going to come back to investing. When talking about healthy money habits, investing is up there with the rest of them. Don’t lose an opportunity to make your money work for you!
The most financially healthy people chose to set aside a portion of their income to invest in real estate, the stock market, or even an up-and-coming business.
If you can find a legitimate opportunity to watch your money grow, take it!
Each month, I budget for a contribution into my investment account. It helps my money work for me, and build my future financial stability.
Now, with little to no effort, I am automatically building wealth through my budget.
Budgets help you spend wisely
Have you ever been on a trip to the mall and you have no idea how much money you have in your account? You quickly check your bank app and try to figure out how much money you could spend and still make rent this month… how stressful!
It’s sad that some of us feel stressed about spending our own money, sometimes on things we really need! I’ve certainly felt this before. My mental relationship with money would go from “wow! I can spend whatever I want this weekend – my checking account balance is so high” to “I might not have any money for gas this month, so I definitely can’t go out with friends.”
What a difference in mindset! The whiplash of these different thoughts caused me to have an unhealthy relationship with my money. Maybe you’ve been there too?
The great thing is that budgeting takes this mystery out of spending. If you budget for a certain percent of your income to go towards clothing, you might even feel accomplished when you look at your receipt from the mall!
Do yourself a favor and outline a budget for your needs so you won’t feel guilty when you spend appropriate amounts.
Budgets help you save wisely
If you’re not saving now, then when will you start? It’s easy to say that you’ll begin these habits later on in life, but all of us should practice regularly contributing to savings and investment accounts. This is a huge part of budgeting!
Actor Stephen Baldwin is another sad tale of a wealthy person who failed to save wisely, and ended up losing his fortune. He filed for bankruptcy in 2009 due to investment losses, taxes, and debt.
Failing to save any money to cover these expenses really came back to bite him.
Putting your savings towards an emergency fund is one of the best ways to ensure that you can meet unforeseen expenses, no matter your income level!
My emergency fund has been an expense I’ve saved towards for years now, and recently when my husband’s car had some unforeseen issues, it came in so handy. I’m so thankful we thought to set aside money in savings.
Budgets help you plan for taxes
No one wants to be hit with a huge tax penalty when they’re expecting a return. It’s best to set aside money for taxes, whether that’s straight from your paycheck or included in your budget.
As a self-employed person, I budget for my taxes every month to make sure I stay on top of them. This way I’m not surprised when I owe taxes as I file, and I’ve already saved up what I owe.
Floyd Mayweather, world famous boxer, is a great example of what happens if you don’t account for taxes. Mayweather lost his entire fortune, partially due to his ignorance when it came to taxes.
Basically, he failed to pay taxes on his earnings from several fights, for several years, and ignored the IRS notices that he should pay back these taxes. In the end, he owed over $29 million in taxes and penalties!
It’s crazy to think that something like taxes can cause bankruptcy, even for the rich and famous. Take it from Floyd and budget for your taxes, no matter your financial status!
By the time you’ve perfected your budget based on your income (whatever it may be), you’ll be surprised at how much freedom budgets provide. It might seem constricting at first, but in the end budgets are guidelines that lead you to financial freedom and wealth!
If you want to live within your current means, have fun, build future wealth, spend with a clear conscience, save wisely, and avoid tax surprises, budgeting is for you! So really, it’s for everyone who wants to be financially healthy.
You can chase after money all you want, but if you don’t know how to use it well, you’ll lose it sooner than you think.
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