The Purpose of a Personal Budget
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.
- 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.
- Puts You in Control. A budget enables you to take charge of your finances and your money. Note that the focus is to help you control your finances, not all the way around: you should not let your budget control you. In fact, any financial plan should be kept flexible, able to adapt in case of family emergencies, medical needs, or other unexpected expenses.
- 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 on 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 achieve a clearer vision of your finances so you can be able to plan and take control of your money.
You are establishing the tools that will allow you to get a better handle on how your wealth is used and eventually you'll be able 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.
However, it does require some time and dedication, but it truly well worth it.
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How to Get Started Budgeting
First, you start by going through all your bills and expenses and then you 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?
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 smart and efficient use of your money.
It will allow you to plan a strategy to take care of your fixed and variable expenses, and to 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.
Budgeting is key to financial planning and achieving maximum wealth. It provides you with a detailed picture of 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 view of your financial situation, a necessary tool for efficient planning of your savings and expenses.
Take a Simple Approach to Personal Budgeting
Having a clear outlook 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 when you first start tracking all your expenses.
The secret to keeping the budget simple is to create broad expense categories, without going 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 could have as little as 10-15 items, yet 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.
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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 peacefully at night, knowing that there is no need to worry about money and reaching your goals in terms of savings, purchases, or dream vacations, will give you happiness and serenity that can only bring more great things into your life.
This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
Questions & Answers
What's the point of budgeting if my paycheck is just enough for the basics?
Investing some time creating a budget provides you with a clear view of the money that money flow: what comes in and where does it go? Even when your income it's just enough to cover the basics, it's very important that you are in control and agree with how every cent is spent. Then ask yourself the critical question: are those that I consider basics truly necessary?
Being confident in your spending decisions sets the foundations for a healthy financial life. A budget can help you reach that confidence.Helpful 1
© 2012 Robie Benve