Building wealth doesn’t come as second nature to everyone, but you need to start somewhere.
A budget is not just a tool that is used to make sure you pay your bills on time; a budget can also ensure that you manage your money in such a way as to build wealth. Although being wealthy may seem a far-away concept, you need to start somewhere. Unless you were born into a wealthy family, the only way to become wealthy is to make sure you have a financial profile that is comfortable and that will allow you to build on it.
So, here are just 4 ways having a budget can ensure you increase your wealth:
1. A Budget will reveal deficiencies you have in your Income, allowing you to fill them in.
The first step you must make in order to grow wealth is to create a budget and record and determine your income. This part is simply if you earn a regular monthly wage; it is trickier for the self-employed and freelancers whose income is less regular and more sporadic.
A good way to determine your income is to take the average of your wages from the last 12 months. In order to get a conservative estimate, you may just like to take the average or the lower months, this ensuring that the average is a guaranteed level of income.
Once you have worked out this figure, you will probably be wondering why it is less than you though. Once you take away deductions from your salary such as insurance and tax, the figure you are left with will make both your annual salary and your hourly wage less than you might first presume. If it is now apparent that your income is less than your outgoings, or that you simply need more money, you have a few different options including spending less, and taking on a second job.
2. Keep a Close Eye on Spending
When you keep a close on your sending your money will work for you as you will put a stop to excess spending. We all spend money, but if your goal is to grow wealth, you need to spend less than you earn. This all seems very easy, until of course, it’s time to put changes into practice. When you have a budget to stick to, it’s easier to make better choices and to keep track of your cash purchases and spending.
When you spend over budget, you destroy your wealth. Impulsive spending comes in many different shapes and forms such as buying the newest gadgets, impulse buys at the checkout, and going shopping with a list of groceries and simply not sticking to it.
Let’s put this in simple terms. When you buy something that you don’t really need, the next day you will have less money and an object that is either worthless or that is worth less than you spent on it, and may just collect dust on a shelf. This impulse buy has lines someone else’s pocket and stopped you from growing it and investing it yourself.
3. Budgets Help you Make and Track your Investments
Investing isn’t just for the wealthy. When you invest wisely, you can put yourself on the track to becoming wealthy, and having a budget ensures you invest wisely and have the necessary cash for making investments. Keeping money in a savings account really isn’t a great idea as the rate of interest will be extremely poor, around 0.87% if you are lucky, according to Forbes. Although your money is safe, it will never return on your investment and it won’t make you wealthy.
If you are just starting out with a budget and an investment plan, mutual funds are a great option. They are great for the everyday investor according to the US News and World Report Money, even though there is no guaranteed return.
The average interest earned on mutual funds is somewhere between 3 and 14%, a big difference to the level of interest on a simple savings account.
4. Budgets Help you Set Goals and Reach Them
A budget is a goal-setting tool, and when used wisely, small steps will lead to big advances in the coming years. Although budgets can be seen as difficult or even depressing, they are more importantly empowering.
You can make conscious decisions on what to do with your money when you know what you have, how to spend it, and how to track its performance. By starting small you can improve your current financial situation, and by setting goals, nothing should stand in your way of reaching them.
Perhaps what you need is an emergency fund, or a way to pay back some of your debt. Whatever your goals are, having a budget will ensure you get there, and ensure that you start building up your wealth.
