Budgeting is the art of developing such a financial plan that ensures that your spending is less than your earning and serves as the perfect guideline for saving and expenditures. Nowadays, the word ‘budget’ carries a horrible connotation as people usually associate it with limits and restrictions on their financial dealings. This is a terrible mindset and should be changed as soon as possible. Individuals who develop a financial plan and follow it closely are the ones who are bound to succeed. Thus, budgeting should not be considered a restriction; rather, it should be thought of as a means to achieving a better future.
Most people think of budgeting only when they’re short on cash. For example, most college students usually make a budget to limit their expenses and increase their savings, while newlywed couples use a budget to figure out how to afford a new house on their limited paychecks. While all of this is necessarily true, you must understand that budgeting isn’t just for times of adversity and is a principle that we should always follow, no matter how financially stable we are.
Budgeting is for the rich and poor alike. Common sense dictates that budgeting is much easier in times of change if you are used to doing it all the time. We can assure you that all the biggest companies in the world have developed a budget and follow it religiously. Moreover, a large part of their success is associated with proper budgeting.
Now that we have understood that every person, no matter what his position is on the financial spectrum, should develop a budget, it serves our interest to see how we benefit from it. A good and potent budget will help you do the following:
1. Make long and short term projections
Your budget enables you to plan for short term expenses like utility bills as well as long-term expenditures such as buying a house.
2. Prevent a crisis
Everyone knows that financial crises occur out of the blue. While we can’t predict their occurrence, we can, however, be prepared for them financially. With a proper budget, you will have money saved up on the side and can tap into this resource in testing times.
3. Get the most out of your monthly income
A budget enables you to track all your expenses. You can pinpoint how much money you have spent on necessities of life such as food, clothing, and car fuel as well as how much money you have wasted on embellishments. Thus, it is important to minimize frivolous spending and divert that money to your savings account.
4. Plan for major changes
Your budget enables you to predict how a major purchase (such as a car) will impact your finances in the future. Thus, you can adjust and adapt accordingly and stay afloat. Not only that, but you will also be able to analyze whether you can afford something or not.