To do so, comb through your bank account and credit card statements from the past year, and see what expenses you've been facing on a monthly basis and what they cost. Creating your budgetĬlearly, not following a budget is bad news, so if you don't have one in place, schedule a few hours to set one up. Without a budget, however, you risk overspending and damaging your credit in the process. If you carry too high a balance, your credit score might take a tumble, and once that happens, you might find it difficult to buy a home, rent an apartment, or even get a job. That's because one major factor in determining that score is credit utilization, or the extent to which you use your available credit. Overspending to the point of credit card debt can send your credit score plummeting. As such, not following a budget increases your chances of racking up costly credit card debt - debt that can trap you in a seemingly never-ending interest cycle before you know it. It's easy to overspend when you have no idea how much your bills cost you regularly and how much you can afford to be paying for living expenses given your take-home earnings.
You'll increase your risk of landing in debt If you lose track of your spending, you might miss that mark time after time, thereby lowering your chances of getting to retire when you want and how you want. Say you want to retire at a young age with a sizeable nest egg, and you figure out that to do so, you'll need to consistently set aside $300 a month during your working years. Whether you're saving for emergencies, retirement, a home, or another milestone, if you don't know where your money is going, you'll have a harder time curbing your spending and freeing up cash to put in the bank - or, in the case of retirement, a 401(k) or IRA. That's $100 in savings right there! Ah, but not so fast - if it turns out you only spend $400 a month on groceries, suddenly, you're overpaying in a spending category you could've otherwise kept down. Imagine you think you're spending $600 a month on groceries, and so you decide to sign up for a meal-planning service that costs you just $500 a month instead. Therefore, if you don't follow a budget, you risk walking around virtually clueless about what your expenses actually cost you, and that might lead you to make some pretty poor decisions. The purpose of having a budget is to see where your money is going, and where there's room to spend less. Here are a few nasty consequences that might ensue if you neglect to budget. But if you don't make a little time to create a budget, and then pledge to stick to it afterward, your finances are likely to take a turn for the worse. Chances are, a few hours of quality time with a spreadsheet and calculator aren't going to top your list.
When you think about the ways you might want to spend an evening, you might imagine yourself curled up with a good book, camped out in front of the TV, or at a restaurant having dinner with friends. Here are some unwanted consequences that might ensue if you refuse to budget. Many Americans don't maintain a budget even though it's one of the most useful financial tools out there.
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