In this 21st Century, although the different types of currencies have changed from physical coins to paper notes to plastic cards to cryptocurrencies, the fact that “money is still spent” and that “someone spends money” does not change.
These unchanged realities give rise to the same concerns that people had in previous times: how to spend money effectively while still living a good life.
To solve this issue, I’m here today with the solution of ‘Budgeting’. What is budgeting? Why is it important? How can it help us? All of these questions will be addressed in the coming lines.
What Is a Budget?
Starting off, a ‘budget’ is a necessary component of financial planning and management. At its most primary level, it makes up for all your expenses and income, ensuring that you allocate funds appropriately and are not left stranded at the end of your pay period.
As compared to the ‘simple budget’ stated above, a ‘fantastic budget’, on the other hand, is much more than that. It enables you to prioritize your spending so that you only buy what you truly require.
Although this might seem too ‘scrooge-ish’, for people that truly value budgeting and believe in all the benefits that it brings, this has long-term rewards.
What Do Budgets Do?
Budgets allow you to plan for large expenses such as mortgage payments, college fees, or Christmas by forecasting your money for the months ahead.
By providing you with the resources you need to set and achieve your objectives, it encourages you to save so that you and your family are safe against financial shocks and emergencies.
Budgeting is an essential step in planning your finances and managing your budget. This is especially true for entrepreneurs who are trying to juggle multiple projects and stay on top of their finances.
It can be difficult to balance the different aspects of your business and your personal life without essential budgeting.
Types of Budgeting
Broadly speaking, if required, budgeting can be divided into two simple types: Personal Budgeting and Business Budgeting. Though business budgeting might seem a bit intimidating, in reality, it is not all that different.
Budgeting For Self
From a personal perspective, budgeting is something that every man and woman, single or married, young or old should incorporate into their lives.
In a personal budget, you calculate your expenses for a certain period, then you project your expenditures for that period, and lastly calculate the savings that you earn.
Remember, the most important part of personal budgeting is answering the question: what exactly are you saving for? Meaning, what are your objectives or goals?
Budgeting For Business
Having a budget is one of the most important components of running a business. When a company’s budgeting is done correctly, it can plan forward, ensuring that there is enough income to cover expenses.
A business budget also allows you to prepare for unexpected costs, such as a significant hire or the need to purchase new machinery to continue operations.
Hence, the same principles that apply to personal budgeting also apply to business budgeting. The only difference is that instead of ‘savings’, you are looking at your ‘profit’. And instead of ‘objectives’, you are looking at ‘business development’ and ‘growth forecasts’.
Why Is Budgeting Important?
Getting back to the topic, let’s start elaborating on why budgeting is so crucial and necessary for us and why it would be better for us to start integrating with it right away.
#1 Puts You in The Driving Seat
As the driving force for your business and family, you should know what you’re doing. You have a purpose and clear control of the situations that you face daily. The most important of these are regarding your expenses and earnings.
Budgeting is important as it allows you to control your expenses according to your earnings. It makes sure that your expenses are not the ones controlling you rather it is the other way around.
You have a clear objective and by budgeting, you have ensured that you are in charge of leading towards that objective step by step.
#2 Helps Stabilize Your Family Life
Another important role that budgeting plays in supporting a person’s family life.
The best help that a person’s married life can get is budgeting. It has been observed through research that in a marital relationship, money is an important cornerstone.
Couples that have money-related problems cropping up now and then, tend to lean towards a future divorce more than others.
By working together and developing a budget you can both live with, you are allowing yourself to come to the same page as your partner, with harmony.
You both have needs and wishes. Make room for them by planning on how to spend what you earn.
Budgeting also helps with your childcare. Those extra nappies, your baby’s milk formula, and your child’s education will all improve once you have budgeted and taken into account what you earn and what you spend.
If you live in a country where the state does not provide health benefits and you have to ensure your family’s health care yourself, the importance of budgeting will stand out once again.
And once you see it from an even wider perspective, you will observe that the entirety of your social life is dependent on the budgeting that you do: how involved you are in your social circle which includes your friends, family, and relatives.
Social events related to your friends and relatives like weddings, birthdays, camping trips, funerals, everything is tied to spending money. Once you are actively budgeting your expenses, you are actively participating and improving your social life.
#3 Helps Maintain Financial Comfort
It is usually surmised that financial comfort = mental comfort = relieving stress = facing things head-on = being positive about what life brings you.
Conversely, we can say that financial stress can have a negative impact on one’s physical and mental health. Insomnia, depression, anxiety, relationship issues, and weight gain or loss are all very real side effects of the stress caused by lack of financial comfort.
You may believe that avoiding a creditor’s phone calls and ignoring your billing statements will make you feel better, but in reality, denial and escape will only make things difficult.
Every person, hence, must confront their financial difficulties head-on; with a strategy to reclaim control and move ahead without any worries. That plan and strategy is the product brought about by budgeting.
Through it, you have a good idea of how much money is flowing in and where it will go. You can sleep soundly knowing that you have enough money to pay your expenses, that you’re not overspending, and that you’re on your way to a better financial future.
You will sleep better if you budget your money properly. You know where you stand and have thoroughly analyzed how to get out of a current crisis or a demanding financial situation.
While your situation is not ideal at the moment, you are gradually regaining charge and aren’t feeling overwhelmed. Your approach towards life starts becoming positive.
Hence, an important aspect brought about through budgeting is finding your financial comfort zone and staying there regardless of all external factors.
#4 Helps Prepare For Emergencies
There are many ups and downs in life, and you never know when something unexpected will occur. Budgeting for an emergency can help you in case such a situation does occur.
Even the best of plans have room for improvement meaning, the best of plans can also fail. Staying afloat during such a failure can be possible by establishing an emergency fund.
Your child might fall sick in the middle of the night, or your property sustains damage from natural causes and the insurance does not cover it. Or you lose your job in a volatile economic crisis. All of these come under emergencies.
What budgeting can help you with is making sure there is backup financial support during such times. It is ideal to have a backup of around 3 to 6 months. This money will provide you with some peace of mind and protect you from sliding into debt.
#5 Keeps You Organized
It is said, ‘If you fail to plan, you are planning to fail’. This holds true for being organized as well. If your approach towards your day-to-day life is unplanned and disorganized, you will eventually steer out of control by the slightest bumps.
By budgeting and learning its importance, you know beforehand when and where to spend and how much you can spend at a time. You slowly gain structure over your expenditure.
In order to achieve your daily, weekly, or monthly target you plan your days and weeks accordingly. This planning in turn makes you organized in your life. And not just in your life but your family’s life as well.
So by budgeting, you are not only organizing yourself but helping your spouse and children learn about financial responsibility and organization too.
#6 Identifies Bad Spending Habits
Everyone that spends money has a spending habit. Identifying the good habits from the bad ones can make a lot of difference in your financial life.
“How can budgeting be important”, comes into play in this case.
If you are among those people that wonder where all the money goes by the end of the month, then you need a budget.
Start off slowly: cut on that cable TV subscription that you may have; hundreds of channels that you don’t watch. Identify the ones that you watch regularly and switch to a channel-based subscription.
The magazines that you sometimes read and sometimes don’t. Avoid them. Make your subscription quarterly or half-yearly.
Make a list of the amount of junk food that you buy weekly. Cut it down. Junk food costs more but fills up less. Buy fresh food and learn to cook at home. Encourage your children and young ones to do the same.
Slowly but surely, your bad spending habits will surface and decrease, as you budget yourself properly.
#7 Helps Achieve Your Goals and Wishes
One of the most promising aspects that budgeting aids in is helping a person achieve their goals and dreams.
Everyone has wishes and goals that they would like to achieve in their life. It may be a Master’s degree from a reputable university or a baseball training by a professional. It might be the cooking classes that you’ve always wanted or that trip to Madagascar.
For all these to come to fruition, you have to start learning the importance of budgeting. Once you start, you will know how much savings you can scrape off every month.
Accordingly, you will either get an additional income source or decrease your current spending. Following this pattern throughout, there will come a time when you are standing atop your goals or very near to achieving what you wished for.
You might even go on to make new goals and wishes and start planning for them.
#8 Assists Your Debt Situation
Although it is preferred to avoid being in debt at all if possible, at times there are situations in life where it gets unavoidable. Effective budgeting helps you sort out such situations.
Be it down payments on your car, a mortgage on your apartment, or a loan that you took from a bank for a business that you recently set up. All of these come under debt-related scenarios.
If you are in a similar situation as above and are having problems adjusting to it, then start budgeting right away. You will find out places that you can save on and cash you can input elsewhere.
Budgeting will help you identify the sinkholes in your expenditures and direct them towards areas that require attention including debt resolution.
#9 Helps You Prepare For Your Kids College and Marriage Fund
As a parent, you would love to see your children attain good education and live a happy life. For this to happen successfully, it is imperative that you save enough during your lifetime.
Learning why budgeting is important and applying it to your life, will help you save money.
This can, in turn, enable your children to go through good college education and even help them during their marriage, both of which are heavy expenditures in today’s day and age.
#10 Prepares For Your Retirement Years
Budgeting can also help you secure your retirement. If you were well prepared during your earlier years and have budgeted effectively, you will find it easy later on in life.
Every month, make sure to set aside a portion of your salary to contribute to your retirement accounts. Although you might be missing out today, it will be well worth it in the long run.
Treat your retirement fund the same way you would any other recurrent payment. Your budgeting now will keep you on pace to a more enjoyable and worry-free retired life.
#11 Give Back to the Community
A person interacts with lots of people throughout the course of his or her life. He gains an understanding of pain and discomfort as he grows up.
Then on, he also learns to share the joys he experienced with others, as joy is not bound to any gender, religion, or state.
Saving through budgeting also helps you to give back that extra income to those in need. Whether it be the community in general or specific welfare organizations, helping the needy always feels fulfilling and rich in contentment.
Learn to incorporate budgeting into your day-to-day life. Its importance can only truly be felt once you start employing it. Or when you’re nearing the end of your journey. Looking back then, you will find that it was all well worth it!