Have you had to deal with that feeling of frustration that comes when you look back and realise that your finances have been an utter mess? It can be frustrating to think that you are working super hard with nothing to show for it. The sad news is that such a scenario is almost inevitable when you do not have proper financial planning.
In a bid to make themselves feel better, people often resort to thinking that their income is not enough and maybe they would have achieved so much only if they earned a little higher. Well, you might be shocked to realise that your income will never be enough when you do not have a budget in place. Whether or not you have a huge income, you can only achieve little or no financial freedom without adequate budgeting. The truth is, in most cases, you do not need more money to become financially stable; all you need is more careful budgeting.
You will find this piece very helpful, especially if you are looking to create a reasonable budgeting plan that works. We will be discussing a few budgeting basics to get you started on your journey to financial freedom. Let’s get started!
A budget is often a written plan that contains your estimated revenue and expenses over a specified future period. The best practice is to evaluate your budget periodically, as priorities can change with time. However, the main essence of a budget is to stick to a laid down plan for spending money.
Why You should have a Budget
Interestingly, budgeting comes with more benefits than we can imagine. It stands true to the old saying: “if you fail to plan, you plan to fail.” You can hardly go wrong with your finances when you have a good budget in place. Some of the top benefits of having a budget include the following:
1. Complete control of your money
With a good budget, you can exercise full control over your finances: you get to easily determine how and what you spend your money on. There is always a tendency to buy anything that takes your fancy. While such purchases may feel exciting, they may be hurting your finances badly. However, having a budget would help you take charge of your spending habits, allowing you to understand the effect of every small expense and ensure you only spend with purpose.
Expense tracking is a practice that complements budgeting. When you start tracking your spendings, you will be able to gain insights on how you can cut your expenses and save more money for more important things. For instance, you may not realise how much money you are spending on eating out until you start tracking your spendings. This helps you appropriately allocate money to the most important things in your subsequent budgets and have more control over your money.
More about expense tracking in a future post.
2. Reach your financial goals easier
We all have long-term financial goals, or at least we always have those great projects we want to achieve when we accumulate more funds. However, many people never realise that to achieve a goal, you need to stick to a plan and stay focused on a clearly defined process using a budget. Individuals and businesses use budgets to manage their cash flow and reach their goals.
Without a good budgeting system, it would be a lot harder to stay on track and reach those goals. Budgeting makes you purposeful about your spending: It allows you to ensure that every penny is being used how you want; it also allows you to track your spending to determine whether it matches your priorities.
Also, budgeting allows you to create saving plans and estimate how close you are to reaching your goals, thereby keeping you motivated and disciplined with your spending.
3. Budgeting helps you stay contented
There is so much pressure to live beyond our means in the world today, thanks to social media and peer pressure. The implication is that many people now lack financial contentment — an essential financial behaviour that keeps you from spending beyond what you can afford.
An easy way to achieve financial contentment is to avoid focusing on other people’s finances and pay more attention to growing your finances and meeting your individual financial goals. This is where budgeting comes in. By devoting more time to monitoring your income and expenditures, you consciously focus on your finances instead of others. After a while, you will loose complete focus on what other people do with their money. And, at that moment, you will experience what it is like to be financially content.
4. Budgeting helps to prepare for emergencies
Budgeting allows you to make critical financial decisions ahead of time, making it a lot easier to get the most out of your funds. The truth remains that life is full of various types of emergencies, from unexpected car damage to emergency hospital bills. You can hardly tell what the next emergency would be. Interestingly, every good budget makes room for these emergencies. You can set out a certain portion of your income for emergency purposes in your monthly budget to prepare you for unforeseen financial difficulties.
5. Figure out what to do with excesses
Forget every myth you heard about budgeting — you do not need to be an arithmetic guru to keep a budget. Unlike other financial management tools that require you know how to do complex math.
Here is an example personal budget:
|Starting monthly income||$4,000|
|Clothing & beauty||$300|
A simple budget like the one above can reveal where your money is going, help you better prioritise expenses, allowing you save up on costs. If the budget is strictly adhered to, excesses can be easily saved, invested or donate some portion of it to charity or a cause you're passionate about to make the world a better place.
- A budget is often a written plan that contains your estimated revenue and expenses over a specified future period.
- Individuals and businesses use budgets to manage their cash flow and reach their goals.
- Budgeting gives you complete control of your money
- It helps you reach your financial goals easier
- Budgeting helps you stay financially contented
- Budgeting helps to prepare for unforeseen events
- Budgeting is super easy.
The importance of budgeting can never be over-emphasised. It is no doubt the first step towards achieving financial freedom. Do not sleep on this; you should make up your mind to create and stick to a budget plan today. Still in doubts? Not to worry, in our next post in this category, we will be squashing more myths you might have about budgeting. Stay tuned!