Why Is a Personal Budget Important?

Hanscom Federal Credit Union reports that only 41 percent of Americans actually use a budget. Although budgeting may seem like a drag, being in debt is even more of a bummer, so it's important to figure out how you're spending your money and where you can save. By getting a hold on your spending, you can build your savings and improve your credit score so that you have enough money for emergencies or those big-ticket items.

TL;DR (Too Long; Didn't Read)

A personal budget has many advantages, such as giving each hard earned dollar a purpose, making you aware of overspending and increasing a savings account to cover emergencies and unexpected expenses.

To Understand Spending Habits

Every budget must start from the same place: figuring out how much you're making and how much you're spending each month. By figuring out where your money is going, you'll be more aware of where you need to cut back to pay off your debt and contribute to savings. To discover your spending habits, keep receipts of all of your purchases for the period of one month and then total them up. You may be surprised to find that little luxuries like going out for coffee, eating out and taking long drives really add up over the course of a month.

To Stop Living Paycheck to Paycheck

No one likes that tight feeling that comes at the end of a pay period when you don't have very much money sitting in your checking account. By creating a personal budget, you have a projection of how much money you should be spending throughout the month so that you don't have to panic while waiting for your next paycheck.

To Keep Your Credit Score Healthy

Your budget is a road map for what you spend money on each month, so you can schedule payments for bills, credit cards and loans in advance, which means on-time payments. According to CreditCards.com, 35 percent of your credit score is based on your payment history, while 30 percent is based on your debt-to-credit ratio. By paying your bills on time and paying down your debt, you'll boost your credit score considerably, which means that you'll have an easier time qualifying for loans with lower interest rates when you need them.

To Build a Savings Account

You need to have a cushion to be truly financially secure. While experts recommend saving eight months' salary to protect you in the event that you lose your job, most agree that paying off your credit cards takes precedence to avoid costly interest. By creating a budget, you will be able to control your money so that you contribute at least 10 percent of each paycheck to savings.

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