If you’ve gotten by just fine without a budget, you might think that you don’t need one at all. But when you start to map out your income and expenses across months, you might be surprised at what you can accomplish. If you’re looking for ways to fund your next big purchase, here’s why budgeting is the best decision you can make.
Plan Ahead For Your Purchase
When you pay for a larger purchase, you usually have options open to you beyond paying the entire amount upfront. Many retailers offer some form of a payment plan with monthly installments. You can also take out a loan or use a credit card, which you’ll also pay back in installments. Once you know your payment plan, budgeting will help keep you on track.
Know How Much You Can Afford
A budget is simply a record of your income and expenses during a certain period. Knowing how your money is spent month to month is key to knowing how much left over you have for things like an emergency savings fund, or for a big expenditure.
Let’s say you’re purchasing a laptop that’s $1,500 with a credit card. Just how much do you have to set aside each month if you’re paying it off in monthly installments? Your budget can get you an answer.
Income − Expenses = Savings
Start with your income first, then figure out your expenses. Now, let’s say you’re taking home about $1,700 every month. Figure out what you’ve got left over by subtracting your monthly expenses from your monthly take home amount. Your rent and utilities (electric, gas, water, heat, phone, internet) sets you back $1,000 per month. Your car payment and insurance comes out to $350. Your food budget is another $150.
Rent/Utilities = $1,000
Car Payment/Insurance = $350
Food = $150
Total Expenses = $1,500
Net Pay = $1,700
$1,700 − $1,500 = $200 monthly savings/payments
$200 x 12 months = $2,400 yearly savings/payments
So you’re left with $200 each month that is available to make payments toward your laptop. That means you’ll have the entire $1,500 purchase paid off in under eight months. Once that’s paid for, you can use your budget to set your sights on the next goal.