3 Ways Your Life Could Change When You Set Up a Monthly Budget

A happy couple on a couch with receipts and a laptop.

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As boring as it may sound, there really is a budget for everyone.

Important points

  • 73% of people don’t stick to a monthly budget on a regular basis.
  • 1 in 3 people admit to being stressed about their finances.
  • There is no one budget that fits all, but there are options for everyone.

Credit services company OppLoans recently surveyed 1,100 people across the US to learn more about their financial situation. Here were some of the key takeaways:

  • 52% of those surveyed say their debt is unmanageable.
  • 1 in 3 admit to frequently feeling stressed or anxious about their finances.
  • 25% say they took out a personal loan during COVID-19 to cover basic needs.
  • 2 out of 5 say they live paycheck to paycheck.
  • 53% say they don’t have a savings account or nest egg. Of those who have an emergency fund, 20% say they could only survive on it for three weeks.

And here are two more statistics that might surprise you: 1 in 10 respondents said they had no budget at all. According to a CNBC report, 73% of people don’t stick to a budget on a regular basis.

Whether you’ve never tried using a budget or aren’t particularly good at keeping up with one, you may find that the right budget can transform your life.

The right budget

We all have a favorite flavor of ice cream, a movie we wish we could watch 100 times, and a learning style that is unique to us. Budgeting is not a one-size-fits-all approach, and we shouldn’t all use the same budgeting method.

There are many different ways to set a budget. Some people use the envelope method while others use reverse budgeting. Some people use a budgeting app, while others prefer to jot things down in a notebook — the old-fashioned way.

The point is this: There’s no shame in not having a budget yet (or not liking the budget you’re currently using). Finding the right budget is like meeting the “perfect” person. You will know when you find it.

While it takes a little effort to find the right budget for you, you’ll find it’s worth the effort. Here are some of the ways the right budget can make your life easier.

1. You have fewer cracks to fall through

You may not have many bills to juggle, and keeping them in your head is not a problem. Still, things happen. If you get sick or otherwise distracted, looking at the budget will help ensure you’ve paid for everything that’s due. The fewer late bills, the fewer late fees you will owe.

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2. You have a better sense of where you stand

Let’s say you make $75,000 annually, you want to buy a home but are unsure if you can qualify for a mortgage. You have a car payment, a personal loan, and a few credit cards with outstanding balances. In total, your fixed monthly payments total $1,100.

The amount you are hoping to borrow is $300,000. If you were to land an APR of 7.5%, your mortgage payment (including principal, interest, taxes, and insurance) would be close to $3,700 each month.

One factor that mortgage lenders use to determine eligibility is the debt-to-income ratio (DTI). In short, DTI compares how much you owe to how much you earn each month. In this scenario, your total monthly payments are $4,800 ($1,100 + $3,700). And if you make $75,000 annually, that means your monthly income is $11,050.

To determine your DTI, a lender divides monthly debt by monthly income to come up with a ratio. Yours would look like this: $4,800 ÷ $11,050 = 0.43. That means you would have a DTI of 43%. Most mortgage lenders want the DTI to be 36% or less. The lower your DTI, the lower the risk of missed payments.

In order to bring your DTI down to an acceptable level, you would need to pay off pre-existing debt.

What does DTI have to do with a monthly budget? A budget serves as a monthly reminder of how much debt you have and allows you to quickly calculate what your DTI is. You can see when it’s sneaking up and take steps to bring it down.

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3. Less anxiety

For some of us, the most beneficial thing about a monthly budget is the (relative) sense of control over our finances. Nothing is left to chance, because we always know where we stand. We can’t control what happens in the future, but we can build things like an emergency savings fund into our monthly budget.

A monthly budget might not make you rich or prevent bad things from happening, but it can give you the insight you need to make informed financial decisions.

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