- January 2, 2008 at 2:00 pm #254956LissKeymaster
Why live on a budget?
By Shelly K. Schwartz
4 reasons to budget
1. Help control debt
2. Earn cheaper rates
3. Improve relationships
4. Save more money
If you’re like most Americans, your monthly income never goes far
enough. After shelling out for house payments and groceries, it seems
there’s little leftover for things that matter most to you — weekly
dinners out, orchestra-row theater seats, a college savings plan for
Hate to break it to you, but it’s not your salary that’s to blame.
According to financial experts, it’s a pattern of poor spending
“When my clients sit down and really look at where their money is
going, oftentimes they are shocked to find it has nothing to do with
what’s really important to them,” says Martin Siesta, a certified
financial planner for Compass Wealth Management in Maplewood,
N.J. “Five dollars a day on Starbucks, for example, is a big number
when you multiply it by 360. That takes away from things you may have
been struggling to attain.”
Life’s little extras are well within reach for those who know how to
By establishing reasonable spending limits and sticking to them, the
average consumer can do far more with less — without sacrificing
daily conveniences, said Jim Tehan, a spokesman for the Myvesta
Foundation, a self-help consumer education Web site.
“Budgeting is all about controlling your finances instead of letting
your finances control you,” Tehan says. “That element of control is
going to save you money in the long run.”
Financial mismanagement makes consumers more vulnerable to
overspending, which results in lower savings and higher credit card
Myvesta’s 2005 annual Credit Card Survey, reports the average
American carries $2,328 in credit card debt, spread out across 2.9
cards. With interest rates at or above 18 percent for most cards,
that gets expensive. For example, a $5,000 balance on a credit card
with 18 percent interest would cost you more than $8,000 to pay off
if you made only the minimum payments (4 percent).
“The amount of money you wind up spending just servicing debt through
credit card interest could be extra money you could apply towards
something else,” Siesta says, adding that following a monthly budget
can help you both pay down existing debt and prevent impulse spending
to begin with.
Another upside to life on a budget is that it forces you to become
organized. That, in turn, helps you avoid late payment penalties and
improves your credit score. Lenders use your credit score to
determine how much they should charge you for auto and mortgage
loans. It also can affect how much you pay for auto and homeowners
Improve your relationship
A less obvious benefit of budgeting is the positive effect it can
have on relationships. According to Siesta, sitting down with your
significant other to discuss financial goals helps prevent money
disputes down the road. It also provides a rare opportunity to define
your own spending philosophies. “Money is a huge source of stress for
many couples,” he said. “The mere act of discussing your finances
with a spouse or significant other really does help create better
understanding and better relationships.”
Saving for the future
Finally, learning to live within your means can help you get ahead.
By allocating a portion of your monthly budget towards savings, you
can simultaneously build a retirement nest egg for your future and a
financial safety net for short-term emergencies, in case you or your
spouse lose a job or suddenly fall ill.
“Budgets create financial security, which gives you the ability to
withstand the financial surprises that life throws your way,” Tehan
Budgets are all about financial freedom. Without a plan for saving
and spending, you’ll never make the most of your income — no matter
how much money you earn.
“Budgets are very empowering,” Siesta says.
“They don’t lead you away from something. They lead you toward your
By Shelly K. Schwartz
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