Why Budgeting is Essential for Strong Financial Foundations in Families
The money you earn from your job stays steady between raises. This means that you and your spouse can’t spend more than you make if you want to avoid debt and live your desired lifestyle. Creating a budget for monthly expenses and savings helps you visualize your spending limits and shows your family the realities of household income.
Sticking to the budget can be difficult, but it also shows the family that it’s possible to get what everyone needs at a certain point. Kids learn about the importance of proper money management, which helps them take care of themselves as they enter adulthood.
Budgeting can feel like penny-pinching, but it doesn’t have to if you’re responsible with your allocations. Here’s a look at the importance of making the budget a family activity, and how to manage it in good and bad times.
Contents
Teaches Financial Discipline
Budgeting helps everyone understand that you can’t spend what you don’t have. And if you don’t have the money now, you can adjust the budget to find money for later. Alternatively, you can leave your budget untouched and find side income to get the extra you need.
The overarching goal of watching what you spend is to make sure you don’t go into unnecessary debt. It’s far better to be able to pay off a bill now than to use a credit card and accrue interest. Budgeting gives you financial structure, makes you ask questions about the necessity of a purchase, and shows your family it’s possible to live a comfortable life without much debt.
Helps Save for the Future
Money is a necessity throughout life, and you need to have enough set aside for just about every contingency. Setting money aside for the future helps you feel secure because you know you can handle a financial crisis. It also demonstrates to your family that careful planning can eliminate anxiety over the unknown, allowing everyone to live without the fear of losing everything.
Saving for the future is something that covers a lot of potential calamities, but it also helps build a retirement fund. Putting aside money for your retirement is a wise idea, even if you have retirement accounts through your employer. The money you take out of your budget can be used for IRAs and other retirement vehicles with a steady rate of return. Creating multiple streams of income during retirement makes it easier for you to make your dreams a reality.
Allocates Funds for Repayment of Debt
Taking on debt is inevitable, as it’s not always possible to anticipate every emergency, and some purchases require financing for their acquisition. Anticipated and unanticipated debt requires different types of budgeting strategies, but you’ll be able to get the debt repaid no matter how you rearrange your budget.
Sometimes you need money fast, and you have to take out a payday loan or other type of emergency loan that has a short time frame for repayment. A payday loan also pulls your next paycheck forward, which means you have to overcome the fact you get paid sooner than anticipated. This means you need to reconfigure your budget to accommodate the unexpected debt.
Paying unexpected debt requires pulling money from other areas of the budget. This is an opportunity for you and your family to discuss what sacrifices can be made and what is essential. Although finances will be tighter going forward, the debt can be repaid, and you can return to your original budget in less time.
Accommodates for Improvements in Income
Career advancement comes with a higher salary, which means there’s more money to spend. This is a perfect time to reconfigure the budget with everyone’s input as to where the money goes. Aim for a mix of pleasure and practicality as you allocate the extra income throughout the budget. That way, you can have a bit of free spending without guilt as well as have more money for different parts of the budget.
Getting a raise makes you feel like you can spend more money, which is technically true. The problem with spending more freely is that you can run up more debt because you’re not paying attention. Sticking to your budget helps you avoid making unnecessary purchases, but lets you spend a little extra here and there without feeling constrained.
Makes it Easier to Recover From a Large Expense
As previously mentioned, you can set aside money to cover an unexpected expense or anticipate a large expense in the future. If the expense is larger than your savings, you can opt to adjust your budget to pay down the balance sooner rather than later. You also have the option to pay the debt off at a slower rate, especially if it has good repayment terms, and take less money out of other areas of the budget.
Income Taxes are More Predictable
The goal of every taxpayer is to pay the right amount of taxes every year, and owe a little or receive a small refund. In the event your income is predictable, you can use the tax tables to estimate how much you’ll pay in taxes for the year. Remember that it’s always better for married couples to file jointly to increase the amount of the personal deduction along with other benefits.
Sometimes it happens that you pay more in taxes than you intended to, and get a large refund as a result. You can use the refund as money to treat the whole family or use it as part of the budget for the next month. If you think you’ll owe, make a line item in the budget to pay the taxes when they come due.
Everyone Can See Where the Money is Going
Budgets demystify the question, “Where did the money go?” Tracking your income and outflows shows exactly where the money went and how much you were able to save every month. It also shows you when you can spend a little extra without strain.
Turning the budget into a family activity serves to teach your kids how to use money wisely, and how to use it for fun. Kids can give their input about spending money on fun stuff like vacations or a coveted toy, then watch how long it takes to build up the fund. Parents benefit in the form of financial security that helps them keep their kids safe and provides the opportunity to have some occasional fun.
About the writer: Ashley Nielsen earned a B.S. degree in Business Administration Marketing at Point Loma Nazarene University. She is a freelance writer who loves to share knowledge about general business, marketing, lifestyle, wellness, and financial tips. During her free time, she enjoys being outside, staying active, reading a book, or diving deep into her favorite music.