Budgeting

What's the number one reason that couples in the United States fight? If you answered money, you'd be - you guessed it - right on the money. When you consider the amount of strain that debt places on the average family, you begin to realize that keeping an eye on where your money is being spent is only the beginning of being financially responsible. In order to fully understand what is happening with your money, you need to create a monthly budget.

Your initial reaction to the word budget may be one that involves a cold sweat or thoughts of an argument with your spouse. However, if you take a moment to consider what a monthly budget can do for you, you may just find yourself immersed in household harmony. If you make it a habit of creating a monthly budget and sticking to it, you'll be surprised at the positive financial results that you can achieve. Here are a few reasons why you need a monthly budget.

A budget will help you put a name on every dollar.
When you sit down and create your monthly budget, you'll be using every dollar that comes in. In order to do this, you need to put a name to each dollar. Some of those names are fairly obvious: Car payment, mortgage, savings and retirement come to mind. When you can put a name on every dollar spent, you'll have a great overall snapshot of where your money is going every month.

Budgets give you a clear picture of what your money is doing.
After you've established your monthly budget routine, you'll be able to see exactly where your money is being used. A budget will also show you where any extra money is being spent or where money can be saved.

Financial decisions are much easier to make when you have a budget.
If you find yourself arguing with your spouse about what you should or shouldn't purchase, a budget is an excellent way to put a stop to these discussions. By using a budget, you and your spouse will be able to sit down and make decisions about where your money goes. One good exercise is to have one person make out the budget, then have the other person go through that budget and mark whether particular budget items are agreeable or not. After you've done this, sit down and discuss the items and work on compromising on any that you don't agree on. Placing them on paper provides neutrality and defuses any volatile situations that might occur. Another benefit is that both parties will feel that they have had a say in where money should or shouldn't be spent.

A budget is one of the first steps along the road to financial success.
Believe it or not, when you make out a monthly budget, you'll find money that you didn't realize you had. Impulse purchases and routine purchases of items like morning coffee at the coffee shop tend to add up. When you make out a budget, you'll begin to see the extra dollars that you were spending previously. This will allow you to take those dollars and put them to good use by paying down debt or placing them in mutual funds or other quality investments.

Budgets provide a way to police your spending habits.
By having a budget, every dollar that is being spent is accounted for. This makes it much harder to spend money on impulse purchases. When you see something in the store that you think you just have to have, ask yourself this question: Is it in the budget? If it isn't, don't buy it. Remember, if every dollar in your budget has a purpose, it makes it much harder to dip into it to buy something that isn't down on paper. If you really feel that you need to have the item, sit down with your spouse and decide whether or not the item will fit in next month's budget or whether you'll need to set aside a monthly amount in order to save up for it.

Budgets allow you to set financial goals or set aside money to pay for things in full rather than on a credit card.
Once you've gotten into the habit of budgeting each month, you'll have the opportunity to take extra money that you've found and place it toward things like debt, family vacations, new vehicles or into good quality investments. If you're saving up for the things that you want, you'll never have to use a credit card or store financing to purchase those items. Having cash to pay for these things serves to empower you.

Using a budget is one of the simplest things you can do in order to see where your money is being spent. It's also one of the most powerful financial tools you can use to achieve the financial goals that you've set for yourself.