Budgeting is the skill of making sure that your pay lasts the whole month, ideally with a little left over. Nobody ever said it was necessarily going to be easy, let alone fun, but it’s essential for peace of mind. Here are five signs that you may need to work on your budgeting and why they matter.
You frequently need to “borrow” money (or get other help) from family and friends
Life happens and sometimes getting help from your nearest and dearest is the only option, sometimes it’s just a far more attractive option than getting a commercial loan. If, however, you find yourself regularly needing financial (or other) help from those close to you, then it’s time to look closely at your budgeting to see how you can put a stop to this, even if you are managing to pay the money back (eventually). If you’re becoming dependent on financial gifts, or not paying back loans, then you owe it to those you love and to yourself, to sort yourself out. Even if the people concerned can afford it, they need to take care of their own future and living to a ripe and happy old age can be expensive.
You’re only making the minimum payment on your credit card(s)
The minimum payment is a limit rather than a target. The longer you carry a balance on a credit card, the more likely it becomes that you could wind up paying more in interest than you actually borrowed in the first place. Even if it doesn’t get that far, the simple fact of the matter is that credit cards (and other forms of high-interest credit) are a really expensive way of borrowing money and should generally be paid off as quickly as possible. If you’re only making the minimum payment each month, then you need to take a hard look at your budget to see how you can increase the repayment.
You continually find yourself relying on your overdraft
Overdrafts can have their uses, particularly for those whose income varies from one month to the next, but ideally they should be used as safety nets for occasional emergencies rather than being used month after month. Another danger of relying on overdrafts is that an unforeseen expense or a bill you’ve forgotten could tip you into unauthorised overdraft, which often carries penalty fees and interest charges. A few of these can add up to become uncomfortably expensive.
You have nothing left over at the end of the month
Even if you don’t actually have any debt, even if, in fact, you do actually have some savings, running down to zero by the end of the month is generally best avoided if at all possible. There are many reasons for this. One of them is that if you have any sort of unexpected expense, then you’ll have to dip into your savings to pay for it and then how will you replace those savings?
You’d be hard-pressed to say where your money is actually going
The main purpose of budgeting is to make sure that you’re managing your money appropriately. Its usefulness is probably most obvious to those with little money who need to make sure that they cover all their essential expenses and see if they can possibly squeeze out a little extra to put aside for emergencies. It is, however, still useful for those on higher incomes for whom getting from one pay packet to the next is less of a concern. Basically you can only know whether or not you’re making best use of your money if you actually know where your money is going in the first place.