Essential of Budgeting and Budget

Do you often wonder where does your monthly salary go when there are still bills to be paid? Do you lose sleep at night wondering, if you suddenly lost your job how you will meet your expenses for the next few months? Are your children upset with you because the vacation that you were planning, had to be postponed as you are short of funds? Did your parent have a medical emergency and you ended up borrowing money to meet the expense? If the answer to the above is yes, you are not alone. Almost 70% of the population struggles to manage their expenses within their earnings. If you have been in one (or more) of these situations at some point, the one-stop solution to your problems is budgeting.
Budgeting is the process of creating a plan to spend your money. This spending plan is called a budget. Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do.
Budgeting is simply balancing your expenses with your income. If they don’t balance and you spend more than you make, you will have a problem. Many people don’t realize that they spend more than they earn and slowly sink deeper into debt every year.
If you don’t have enough money to do everything you would like to do, then you can use this planning process to prioritize your spending and focus your money on the things that are most important to you.
Why is Budgeting so Important?
Since budgeting allows you to create a spending plan for your money, it ensures that you will always have enough money for the things you need and the things that are important to you. Following a budget or spending plan will also keep you out of debt or help you work your way out of debt if you are currently in debt. The importance of budgeting are:
1. Gives you a 360° view of your financial standing
Having a budget helps you get a clear idea of how much money you have every month, and how much you can afford to spend while still saving for emergencies and financial goals. Understanding where you are spending money can also give you clarity on how to divide it amongst your needs and wants.
2. Allows you to align your monthly expenses
The mark of a great budget is paying all that you owe and still having some leftover amount at the end of every month. Adjust how you budget your money every month to suit your circumstances.
3. Enables you to fulfill your financial goals
A budget helps you to set financial goals and save up for them – be it saving up the down payment for a home loan, for children’s education or for a business that you plan to start. A budget can help you redirect your money from unnecessary spending to important goals.
4. Helps you save for a rainy day
Budgeting can help you safeguard your finances against unexpected events if you set aside a small amount in your monthly budget to build an emergency fund. Just like an ant saves food every day to prepare for the winter, it’s important that you have an emergency fund for any unforeseen circumstances, which is different from saving up for a long-term goal. Set aside a small percentage of your income until you have enough money to cover at least three to six months’ worth of expenses.
5. Curbs excessive borrowing
With a budget, you can manage your expenses within your income and stop unnecessary borrowing for every big or small expense. Impulsively spending on unnecessary things reduces your spending power every month as more and more of your money is directed towards paying interest costs or for things that won’t have any value in the long run. With a budget, you can even plan for those months when you have additional expenses due to festivals, parties, gifts for weddings, or a destination vacation etc.
6. Reduces money-related stress
“A big part of financial freedom is having your heart and mind free from worry about the what-ifs of life.” – Suze Orman
Having a budget can help manage your money wisely, thus relieving you of stress and sleepless nights. This means that you will be able to afford that extra takeout meal without wondering if you’re cutting into your dream home! While crunching numbers may not be your idea of an ideal Sunday, taking time out to budget every once in a while allows you to spend money with confidence. Thus, budgeting becomes the foundation of your pursuit of financial happiness.

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