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Britt Erica Tunick is an award winning financial journalist who has spent the past 17 years writing about virtually every aspect of finance. She has mastered the art of boiling down complicated financial topics for readers to understand. |
Making and maintaining a budget is key to both business and personal finances. Without a budget, you could be losing money on unnecessary expenditures and not maximizing your savings and investments. Why You Need a Budget By Britt Erica Tunick You wouldn’t even think about setting foot into an airplane flown by a pilot who is blindfolded. But when it comes to managing their finances many people don’t think about the consequences of flying blind. No matter how much time you spend reading up on investment strategies or tactics for building wealth, if you don’t have a budget there is a good chance that you are wasting money or spending more than you realize in certain areas each month. It is very likely that you could wind up falling short of your long-term savings goals. Few people enjoy the process of creating a budget, but without one it is incredibly easy to fall short of your savings goals, and to spend more than you can afford at any given time and quickly find yourself saddled with unexpected debt. Having a budget forces you to regularly examine where your money is going how much, or how little, of the money you earn actually makes its way into your savings and investments. Routinely looking at your spending can also help to identify areas where money is being wasted or where spending could potentially become problematic. And if you have children, particularly teenagers, a budget can be an extremely useful tool for creating awareness about money and spending. When it comes to allocating the money you earn each month, there are several schools of thought regarding how much you should be allocated for fixed monthly expenses such as mortgage or rent payments and utilities and how much you should use for other expenses such as purchases, dining out and entertainment. While some financial advisors suggest allocating 50% of your monthly after tax income to fixed monthly expenses, others suggest that it is okay if that percentage climbs to 60%. One thing nearly all financial advisors agree on, however, is that you should aim to invest at least 10% of your monthly income into long-term retirement savings and that you should have additional short term savings set aside, with regular contributions made to these savings as well. Figuring out how much you can afford to spend each month and how much you should be saving is contingent on several factors such as defining your long term retirement goals, whether you are saving for a house or college tuition and whether or not you have significant debt. Given the number of variables that play into setting a budget it is something you may want to consider speaking with a financial advisor about, particularly if you are working to pay down debt. |
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