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The Importance Of Budgeting

Updated: Feb 9, 2022

I have sent out many emails over the years to stress the importance of budgeting, having financial goals, and to track spending. Very few responses or feedback needless to say. That's because most people find this tedious or chore-like work they rather not be bothered with. But when you get sick and tired of being sick and tired, the viewpoint changes as this is made a priority.


I have been doing tax preparation professionally for 11 years now. Seems like yesterday. But one of the going patterns I noticed is people from various income brackets will complain about not making enough money. Even in case where income increases. Why? This is because there is no tracking or monitoring of spending.


When extra money comes, wants and instant gratification takes priority over needs and strategy. This will keep you on a hamster wheel always running and chasing after more income. This is lead to stress, depression, anxiety, and desperation.


YOU HAVE TO MAKE TIME TO SET UP GOALS AND HAVE A PLAN.

According to a survey from personal finance management company Mint, 65% of Americans have no idea how much money they spent last month.[1] Other research has shown that money is the primary source of stress for many Americans, more so than personal relationships or work.[2]


Over 32% of people who don't have a budget say that they don't make enough money to need one, or that they're too poor to budget.[3]



Making a budget and sticking to it is good for the following reasons:


  1. Can help alleviate financial stress. he majority of people who maintain a budget report feeling more in control, more confident, and more secure.[4]

  2. Focus. Referring to your budget on the regular helps you to focused and disciplined when you get the the itchy fingers.

  3. SMART Goals. A budget will help you be SMART (Specific, Measurable, Attainable, Relevant, and Time based) about making goals. attainable goals keeps you encouraged, while unrealistic goals set up for disappointment leading to hopelessness.

  4. Victimhood. Budgeting helps with plan execution. Once you have a plan, you have accepted where you are and have made up in your mind to make improvements. Once you have made up your mind, you begin to detach yourself from desperation that attracts "The Fraud People" and manipulative salespeople. The fraud people can smell greed, desperation, and hopelessness a mile away. The play on your emotions tied to your financial situation to talk you into illegal schemes that creates more financial loss for you and more financial gain for them.

  5. Financial Literacy. This is one of the first steps you take towards developing financial literacy. The Financial System is based off the fundamental of income, expenses, and budgeting. Understanding how to budget will give you insight as to how budgeting helps government (federal, state, local) and businesses make decisions, and how those decisions influence the economy.

Run your household finances like a business. Build up your household economy!

Your tax file is your annual financial statement. Monthly budgeting aid with tax planning.

Download template here:

Household.income statement
.pdf
Download PDF • 34KB


How to Set Up Your Budget


  1. Identify Goals. Name 3-4 goals. Have short-term(30days), mid-term(1-2 years) and long-term(5-10 years) goals. This helps you to map out a plan and come up with strategy.

  2. Documents. gather all your documents to help you determine income and expenses. Bank and credit card statements, Receipts for cash purchases, invoices, bill statements, etc.

  3. Fixed and variable. Separate your expenses between fixed (do not change monthly) and variable categories (change according to usage). You do this because it helps you identify what you can control and what you can't. When you need to trim the fat off your budget, you will do so with the variable expenses.

  4. Total Out. Total up all your income and expenses. If you are in a deficit, You need to trim the fat in the variable cost section either by reducing or eliminating. Oh, you will need to put your emotions in check when it comes to this part.

If you are still operating at a loss, you may have to reduce your fixed costs by reducing your cost of living. Ex: moving to decrease rent expense, or refinancing your mortgage.


5. ORGANIZATION. If you find paperwork to be tedious and cumbersome, make it easy for yourself by using all the different types of free apps or software in this dawn of the technology age. DEVELOP A FILING SYSTEM. It can be in file folders or on a USB. Throwing everything in a shoebox or a grocery bag only creates more work that you will have to stomach eventually.


Excuses are like __________ (fill in the blank with your favorite comparable). Everyone has one. We don't coddle or enable at Tax Star Mobile, LLC. We practice tough love. Changes don't happen overnight, so the longer it takes you to acknowledge your behavior patterns, the longer it will take to improve and reach desired goals.


A Tax Refund Should Not Be Your Only Financial Holiday.

We're ready when you are.



References:

  1. Mint. "Survey: 65% of Americans Have No Idea How Much They Spent Last Month." Accessed April 1, 2021.

  2. Northwestern Mutual. "Planning and Progress Study 2018." Accessed April 1, 2021.When Money is Tight

  3. Debt.com. "Debt.com’s 2020 Budgeting Survey Reveals More Americans Than Ever Are Budgeting." Accessed April 1, 2021.

  4. CFP Board. "Consumer Views on Personal Cash Flow Planning," Page 12. Accessed April 1, 2021.

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