September 15th, 2020
You hate budgeting… but we love it. So, let us explain why.
To keep you out of debt.
When people do not budget appropriately, they often turn to credit cards to finance any unanticipated expenses. The very last thing you want to do to yourself is rack up thousands and thousands of dollars of credit card debt that you are paying high interest rates on every year. With the compounding interest, credit card debt can spiral out of control quickly.
But, if you follow a budget that accomplishes more than just keeping you out of debt, it will open more and more doors for you financially.
This will become important down the road as you reach life’s financial milestones. From buying your first car to refinancing your student loans to applying for a mortgage, each and every time you apply for a personal loan, someone somewhere will look into your personal finances to determine if they will lend you money or not.
The better they determine your personal financial situation, the better your loan terms and even things like insurance quotes will be.
(The end goal, is personally looking at your personal finances and realizing you can retire, most importantly, with the financial freedom to do so comfortably).
Fortunately, most consumer lenders take similar things into consideration and mainly focus on any debt you currently have, your income, and your credit score.
Your debt-to-income ratio is the most scrutinized factor.
Budgeting will keep all of these metrics in check for you. Your total debt includes all monthly obligations you have be it mortgage payments, car loans, credit card bills, student loans, etc. Your income will be your gross monthly income. Most lenders want to see this ratio under 36% and will include your estimated mortgage payment in this calculation. Once meeting this metric, your credit score will help improve loan terms. With a higher score, you will receive more favorable terms, rates, and down payment requirements.
Thus, saving you tons and tons of money.