You’ve probably heard plenty of investment advisors, financial planners, and other financial experts harp on the importance of having a monthly budget before. Tom explains three reasons why you need to have a monthly budget in this video from Mullooly Asset Management.
The first of three reasons why you need to have a monthly budget is that knowing what you spend will help you create an emergency fund. Before you even think about investing your money, it would be prudent to save three months of expenses. Without knowing how much you spend in a month, how will you save three times that to start your financial safety net? Figure out what it costs you to live your current lifestyle, multiply that by (at least) three, and save that total to be used in case of an emergency.
The second reason you need a monthly budget builds off the concept of having a financial safety net. If you’ve created an emergency fund for yourself, it’s time to start paying down your debt. You need to decrease your debts or get rid of them altogether before investing your money with confidence. Knowing your monthly budget is important to paying down debt. When you know how much you spend each month, that also means you know how much money will be left over to increase your payments and get out of debt.
The final of the three reasons why you need to have a monthly budget is that knowing what you spend each month is critical to investing. If you don’t have an emergency fund and have tons of debt, how can you invest with confidence? All three reasons to have a monthly budget build off each other, with the end result being you enjoying financial security and well being. Start the process today, and figure out what you spend on a monthly basis. The sooner you know that the better.