Given the benefits of having a budget, we should all have one. Low Income Loan Australia has provided three reasons why budgeting is a healthy financial habit to get into.
1. Budgeting can help you avoid spiralling debt
Sometimes it can be hard to live within our means — but if you spend more than you earn, you will inevitably get into debt. Once you start putting money on credit cards and taking out loans, you’ll start having to pay interest — which only increases your debt further.
Budgeting can help you avoid spiralling into debt, by helping you better understand where your money is going. Once you have identified where you’re wasting money, you can prioritise your spending on what’s important.
To begin your budget, add up all your essential expenses, like your rent or mortgage, bills, petrol, groceries and credit card repayments. Then, subtract this amount from your income to work out how much remains. If you can, use any surplus money to pay down your debt more quickly. Or, if you find that you are spending more than you earn, use this new understanding to identify where you can cut back.
2. Budgeting helps you save for the future
Once you’ve identified where the waste is in your budget, you can cut it out and direct it to more important priorities.
The cost of unnecessary items, like take-away meals, extra shoes or clothing, or taxi-rides home may seem insignificant week to week. However, if that money was saved over the course of a year, it could really make a difference when it comes to paying off a debt or simply saving for a rainy day.
With savings in the bank, you would be in a better position to cover unexpected expenses without having to go into debt. You could then begin saving for important assets which could make a real difference to your standard of living — such as a new car or even a home deposit. You could also save for something you have always wanted to do, such as an overseas holiday or equipment for a hobby or sporting activity.
3. Budgeting can help you get a loan
Whether you are planning to buy a house or car, further your studies, or consolidate your debts, a budget can help you determine how much your repayments will be. Budgeting can also make applying for a loan less stressful, as you will know exactly how much you can afford to repay. Low Income Loans Australia sees many loans get declined because borrowers down understand their borrowing capacity which is largely driven by a budget. Having this information will make it easier to set up a loan term and payment schedule that you can afford — and that you will stick to.