Most Americans Confused Over the Purpose of a Budget
A recent poll conducted by the National Foundation for Credit Counseling (NFCC) found that a majority of respondents misunderstand the purpose of a budget. 57 percent of respondents believe a budget doesn't give you the ability to be in charge of your spending but rather restricts spending.
The exact question posed in the survey was, "I consider a monthly budget to be:
A) Restriction on how I choose to spend my money
B) A freedom allowing me to spend my money as I have chosen"
57 percent believe a budget is "a restriction on how I choose to spend my money," while 43 percent believe a budget is "a freedom allowing me to spend my money as I have chosen."
Gail Cunningham, spokesperson for the NFCC said the following:
A budget actually provides the structure through which a person can be in charge of his or her spending, directing the dollars to their best use. Spending should be a reflection of a person’s priorities, but without a plan, the priorities often get pushed aside in favor of the tyranny of the urgent.
Lots of times the urgent isn't really urgent. It's actually more of an impulse. The attitude many people continue to have is that if you don't have the cash, why wait, charge it and pay it off later. Credit card's low interest rates luring people into the sense of buying things on credit as "free money." Besides failing to create a budget and come up with a savings plan, the biggest mistake most people often make is charging purchases without the intent of paying the credit card bill in full.
While creating a budget might not seem like getting "what you want when you want it," it will get you what you want in the manner best for you. Creating a budget and saving for major purchases will still get you to your goals, or wants. A budget creates a process for you to be fully aware of your spending. A budget can also minimize financial stress since you know where you stand with your finances at any given time.
Gail Cunningham also said:
It’s a shame that budgeting has a negative connotation. Everyone needs a spending plan, but when times are tough, a budget is even more critical. When every penny counts, it’s important to count every penny.
The NFCC also provide a monthly budget worksheet that you can use to track your spending. In the worksheet you can list your monthly income, monthly fixed expenses, and monthly variable expenses. When you list all of your expenses, you will probably be shocked at how much money you're spending each month.
You will also see how much money you're wasting on things you don't need. These savings add up quickly and can add up to a substantial amount of money in just a few months. There is also the advice to pay yourself first before paying all your expenses. That being said, you should also add a row in worksheet and call it "Savings."
Add money each month to your savings and treat it like a bill that has to be paid every month. Open a savings account, money market account, or certificate of deposit and place your savings in the account with the intention of not using it for any reason but what you're planned. You can search for the best CD rates, savings rates, and money market rates right here at Monitor Bank Rates.