Families that always seem to find themselves short on cash at the end of the month or are having difficulty making headway in reducing their debt load can benefit by preparing a budget. A carefully prepared budget serves as a financial roadmap by helping families see where their hard-earned money is really going each month. Preparing and implementing a budget also provides an opportunity for a family to pull together to reach financial goals.
A budget allows you to track your spending so you can really see where and how you are parting with your money. You'll likely discover areas where you are spending needlessly or excessively, such as on entertainment or eating out. For families that may be having difficulties making ends meet, eliminating wasteful spending can free up the extra money that provides financial breathing room at the end of the month.
Budgeting can help families set and attain important financial goals. By determining how much money is available for saving and investing through budget development, the family can allocate amounts of money each month toward retirement or saving for the children's education. This helps ensure the money is set aside for these purposes instead of being wasted on less important items. If income increases due to pay raises or job changes, the amount of allocation toward the goals can also increase proportionately.
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Developing a budget can also serve as an effective method of eliminating debt. Families that are serious about eliminating credit card debt can earmark a specific amount of money toward making more than the minimum required payment each month. The reduction in frivolous spending that may have come from excessive credit card use can now be a source of the additional funds to apply to the debt. Some of the savings can also be used to build an emergency fund so that unexpected expenses can be paid for with cash instead of credit.
Setting an Example
Getting the whole family involved in the budgeting process serves as an excellent way to teach your kids about financial responsibility and provides a positive example. Have your kids help think of ways they can cut household expenses such as reducing their energy consumption or how getting a part-time job such as a paper route can reduce the money they need to ask for from you. Show them how their efforts make a positive impact on the family's "bottom line" at the end of each month.