Frugal LivingStarting a BusinessFinding a JobIndustriesReal EstateBusinessPersonal FinanceSelf-EmploymentScams & FraudInsurance

The Purpose of a Personal Budget

Updated on October 4, 2016
Robie Benve profile image

Robie is a writer interested in frugal living and ways to acquire financial strength. She got her MBA from the University of Venice, Italy.

Benefits of Budgeting

The advantages of budgeting way outdo the time and effort put into it. A budget helps eliminate unnecessary expenses and hidden fees; getting your savings organized can really make the extra money work for you.

  • A Budget Gives You Knowledge. You start your personal budget by taking a good look at your income sources, bills, expenditures, and debts. Just by going through all your financial information and writing them in an organized manner you gain a deep understanding of how your money flows in and out every month. This knowledge provides you with the power of recognizing the things that are not working for you and the ability to change them.
  • A Budget Puts You in Control. A budget enables you to take charge of your finances and your money. Note that the focus of budgeting is to help you control your finances, not all the way around: you should not let your budget control you. In fact, any budget should be kept flexible, able to adapt in case of family emergencies, medical needs, or other unexpected expenses.
  • A Budget is a Communication Tool. Each person has a very unique set of values and priorities regarding how to handle money. If you budget with a partner, chances are that the two of you have different ideas of what expenses are necessary and how much should be saved or spent every month. A budget is a great communication tool that helps you discuss your different philosophies how to handle your finances, and provides a firm point of reference for both of you.

Why Should You Budget?

The main purpose of budgeting is to plan your finances so you can be in control of your money and have the tools to save enough to cover both known and unknown expenses.

Setting up and maintaining a personal budget may seem like a lot of work, but it is not as complicated and as laborious that it may appear.

How to Get Started Budgeting

To start a budget, first you go through all your bills and expenses and organize them into categories. Just by doing this you gain a deeper understanding of your assets and spending habits.

Then you sit down and decide your financial goals: where would you like to be financially in 1, 3, and 5 years?
What kind of purchases or vacations are you saving for?

To start a budget, first you go through all your bills and expenses and organize them into categories.
To start a budget, first you go through all your bills and expenses and organize them into categories. | Source

Gain a Clear Vision of Your Finances

After you complete the setting your financial goals phase, you’ll have a clear vision of what your priorities are.

With this newly acquired knowledge about your finances you can look at how you handle your money, and identify opportunities to act and make the changes needed in order to reach your financial goals and the desired results.

A Budget Is a Tool to Maximize Your Wealth

A budget is a tool that allows you to organize and analyze your money and to make the best financial and spending decisions.

The main reason for budgeting is the desire to maximize your wealth by making a smart and efficient use of your money. You’ll need to have a strategy on how to take care of your fixed and variable expenses, and be able to save money upfront for expenses that you know are coming later. This requires planning.

Only with a good amount of financial planning you can ensure that you’ll be able to make the choices that will get you closer to acquiring your financial goals and reaching financial security.

A budget is the key to financial planning to achieve maximum wealth.To do any planning you need to know exactly how much money comes in every month, how much is already committed to fixed expenses, and how much is available for miscellaneous and variable purchases.

A budget provides a clear picture of your financial situation, a necessary tool for an efficient planning of your savings and expenses.

Take a simple approach to personal budgeting

Having a simple and productive perspective on your money will allow you to make better financial decisions and take actions that will bring consistent and positive results.

A budget does not have to be complicated or take a lot of your time.
The biggest time investment is needed at the beginning, when you first start keeping track all your expenses. The secret to keeping the budget simple is to keep the expense categories broad, don’t go into too much detail; i.e. you can list groceries , but there is no need to have an item for each supermarket or store you shop at.

A good budget can have as little as 10-15 items, and still give you a great picture of your state of affairs. You can write it on paper, set up a simple Excel spreadsheet, or use a commercial budgeting software. Any way you feel comfortable doing it will be fine, as long as you keep your personal budget simple yet complete of all information.

A budget enables you to take control of your finances and your money.
A budget enables you to take control of your finances and your money. | Source

Rich or poor you need a budget

A personal budget is not important only for people in financial trouble and those having a hard time making ends meet. Anyone can benefit from financial planning.

If you are already doing fine with your money without budgeting, imagine the possibilities of what you can achieve if you take the time to plan accurately and use your money efficiently to reach all your goals.

No matter if rich or poor, having a good knowledge of your financial situation and taking the time to prioritize the goals you want to achieve in the short, medium and long term can benefit your life in remarkable ways.

Think about companies: businesses all around the world keep budgets and monitor them as a daily task. Budgeting for a business is a necessity, even if they are not running in red, actually it is even more important when things are going well, to make sure that they are investing properly and making the money work efficiently.

Being able to sleep serene at night because you know there is no need to worry about money, and reaching your goals in terms of savings, purchases, or dream vacations, will give you a happiness and a serenity that can only bring more great things into your life.

© 2012 Robie Benve

Comments

    0 of 8192 characters used
    Post Comment

    • Jason mackenzie profile image

      Jason Mackenzie 6 months ago from Perth WA 6000

      Agreeing with everything that you have discussed here, especially the point that your level of income is not an excuse to avoid budgeting. Whether you are rich or poor, having a budget is a must - I totally agree with this.

    • Robie Benve profile image
      Author

      Robie Benve 5 years ago from Ohio

      habee, thanks for stopping by and commenting. Best wishes and happy saving! :)

    • habee profile image

      Holle Abee 5 years ago from Georgia

      Robbie, I so need these tips! When it comes to spending on the grands, my budget is out the window. lol. Voted up!

    • Robie Benve profile image
      Author

      Robie Benve 5 years ago from Ohio

      Hi Marcy,

      yeah, what's better than being in control? Such a powerful and reassuring feeling. Thanks for your comment and support! :)

    • Robie Benve profile image
      Author

      Robie Benve 5 years ago from Ohio

      Cliff, unforeseen things happen, and some a very good things. Too bad that many of them affect our budget. Sometimes we have to seize the moment, and sometimes we have to make compromises, but there is a solution to everything. :) If you have to sit down and plan for a mending budget, keep the smile on and stay positive, a positive attitude makes everything easier.

      Thanks for reading and supporting! :)

    • Marcy Goodfleisch profile image

      Marcy Goodfleisch 5 years ago from Planet Earth

      You are so right; having a budget puts us in control rather than having our spending control our lives. Very great points here! Voted up, useful and interesting!

    • Cliff Mendrez profile image

      Cliff Mendrez 5 years ago from Philippines

      Great hub, Robie. Just two days ago, I went on a trip that was out of my plans. My budget has been affected a lot. This hub is a good reminder that planning is key when making a personal budget. Up and sharing!