Why Live on a Budget?

	• Once Debt Is Gone, How Do You Save? "After paying off the credit card debt and other big-ticket items, how does one get back into a savings mode?" go >

By by Shelly K. Schwartz
Bankrate.com

If you're like most Americans, your monthly income never goes far enough. After shelling out for house payments and groceries, it seems there's little leftover for things that matter most to you -- weekly dinners out, orchestra-row theater seats, a college savings plan for your kids.

I hate to break it to you, but it's not your salary that's to blame. According to financial experts, it's a pattern of poor spending choices.

"When my clients sit down and really look at where their money is going, oftentimes they are shocked to find it has nothing to do with what's really important to them," says Martin Siesta, a certified financial planner for Compass Wealth Management in Maplewood, N.J. "Five dollars a day on Starbucks, for example, is a big number when you multiply it by 360. That takes away from things you may have been struggling to attain."

Life's little extras are well within reach for those who know how to budget.

By establishing reasonable spending limits and sticking to them, the average consumer can do far more with less -- without sacrificing daily conveniences, said Jim Tehan, a spokesman for the Myvesta Foundation, a self-help consumer education Web site. "Budgeting is all about controlling your finances instead of letting your finances control you," Tehan says. "That element of control is going to save you money in the long run."

Four Reasons to Budget

• Help control debt
• Earn cheaper rates
• Improve relationships
• Save more money

Controlling Debt Financial mismanagement makes consumers more vulnerable to overspending, which results in lower savings and higher credit card debt.

Myvesta's 2005 annual Credit Card Survey, reports the average American carries $2,328 in credit card debt, spread out across 2.9 cards. With interest rates at or above 18 percent for most cards, that gets expensive. For example, a $5,000 balance on a credit card with 18 percent interest would cost you more than $8,000 to pay off if you made only the minimum payments (4 percent).

"The amount of money you wind up spending just servicing debt through credit card interest could be extra money you could apply toward something else," Siesta says, adding that following a monthly budget can help you both pay down existing debt and prevent impulse spending to begin with.

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