Making money has become quite more accessible in this era. Just a phone and a good internet connection are enough sometimes to make you the next rich man. However, spending money without knowing it is also the current hot trend. The reason is that our lives are now constantly bombarded with marketing. You’d often see an ad of a good jacket and it’s coming at an extremely low price too. Or the next time you log on to Facebook, you might see an ad for the best restaurant deal in town. Next thing you know, you are out of money. Therefore, it is essential for all of us to exactly know the benefits of saving money and the benefits of budgeting money to lead a balanced life. Otherwise, we might become the next shopaholic.
Luckily, there is a professional field of finance that serves this purpose and will help you in your battle against uncontrollable spending. Personal finance is about teaching yourself how to budget, allocate, and spend your money to maintain your resources. This begins with planning and knowing your resources and how to spend it wisely. The first step, however, is budgeting your money, and that’s what this article is going to be about.
First of all, we need to discuss the process of budgeting. If you are a newbie to this concept, then by now, you do realize that there is a need to keep a check on your money.
The first step is to determine your total income for the month as a budget should be based on a person’s income. If you are a student hoping to make more savings, then, in that case, your pocket money will be treated as your income.
After that, the second step is to divide your expenditures or the things to budget for. This is exceptionally crucial as expenses are tough to track if they are not categorized. However, when you divide those expenditures into types and subtypes, only then you begin to see precisely where and when most of your money is spent. Therefore, after categorizing, it becomes quite easier to know where you need to put controls and what types of expenses will occur no matter what. The unavoidable expenses eventually become the things we have to budget for, no matter what. For me, these categories are food, clothing, entertainment, transport, and books. However, you can divide your expenses as you want and add as many categories to the budget as per your requirement. Be sure to add the option of Others as much of your income may not be spent on what you categorized.
After categorizing or budgeting for all your expenses, the third step is to predict your expenses in the start of every month. Although, there are many tools to make that prediction, you can opt to keep it simple and just make estimates of how much you are going to spend on each category. This can be done by using a simple calculator with estimates to guide you in allocating your money for the categories you plan on budgeting for. A wise tip can be to always keep a provisional balance in each category as situations are not always as constant as you have them planned. Still, categorizing with a rough estimate will help you keep track of your everyday transactions and make budgeting easier.
After this step, you can begin with the fourth step that involves recording all your transactions as they happen in real time. It is crucial to record every transaction to reap the real benefits of budgeting. Otherwise, you might still end up spending more and give up the habit of budgeting altogether.
The last step of budgeting, step five, is to constantly improve with experience. If you have gone through the above steps carefully, then by now you would know exactly where your spending’s mostly take place. However, it’s not enough for you to just keep a track on these transactions. The final step is to decide how and where you can make deductions on your budget. Once you gain enough experience, you will begin to master the art of budgeting and move on to the benefits of saving; the ultimate goal for your budgeting. Hence, by following these five simple steps, you can successfully make budgeting part of your life to better manage your expenses. But the question is, where exactly are we going to use these steps and where do we plan on recording these transactions?
Professional Tools for Budgeting
After knowing the steps involved in the budgeting process, it is now time for us to move forward ad decide our tool for budgeting. You can easily make your own budget sheet using excel or the various applications from the app store that can help. This will involve a combination of all the steps that we have discussed above. A few examples of such applications other than excel are;
The above applications are my personal favorites. Each serves with a new method and it ultimately depends on your taste and liking to decide on an application. Regardless of which category you use, the most essential step is to keep recording your transactions as they happen no matter how minor they are. This is because these application, tools and draft will only work if you do. If you find it hard for yourself to keep a track on your spending, you can always ask for help by a friend or family undergoing the same problem. Then, by using daily accountability, you two can help easy other and realize both the benefits of budgeting and benefits of saving your money.
You may have noticed that we have talked often about the benefits of budgeting and why budgeting is important. Conversely, we haven’t really discussed the benefits of budgeting except for one or two. Although, most of us realize why budgeting is important, the vast amount of benefits that are linked to budgeting will give further strength to your decision of having control over your resources.
Benefits of budgeting
- Control over Money
The first advantage that daily budgeting will provide is complete control over your money. After you have made budgeting an active part of your life, you will be able to a clear difference between your life after budgeting to your life before.
Before adopting budgeting of your money, you may have found yourself under the influence of your salary and your income. It becomes extremely hard to keep track of money and before you realize, you are out of money again. This process is completely turned around through budgeting. After you start the process of personal finance, you will no longer be at the mercy of your money. Instead, you will have full control over your money to decide where and how you want to spend it.
- Make more Savings
Once you begin to budget your money, it becomes more and more easier for you to allocate, and ultimately, achieve savings on a monthly basis. This is because budgeting helps you keep a strict check on when and where your money is being spent. As you decide in the second step to divide your expenses that you want to budget for, you can always allocate a category for savings. Keep a strict check on yourself and try not to spend the amount you entered in this category. At first, it might seem a little hard to keep up with your saving goal. However, as the time passes, you will see how more and more easier it can get to save on a monthly basis.
- Avoidance of Unexpected Situations
Life does not always go as you want it too and it is often a good idea to have some cash on the side in case of unexpected expenditures. These situations can occur any time in life and can get pretty embarrassing if you find yourself out of cash. Hence, budgeting makes sure that you always have enough to deal with these type of expenditures.
- Always having emergency cash
In life, it is not only unexpected situations that you need to be careful of. Often, you find yourself in a situation where you need cash right on the spot. An example of such a situation can be of an accident. If you have just been in an accident alone, then you won’t have the help from your friends and family. In that case, if you find yourself out of money, then getting the right treatment can become quite hard quite quickly. Hence, this is why budgeting is always important as it keeps you prepared in case of an emergency.
- Helps you achieve your Goals
We all have some goals in mind be it short term or long term goals. However, much of these ambitions we want to achieve have money involved one way or another. For example, one of my top goals for this year is to secure an admission abroad. However, the education that I have will not always be enough. I might have to give further tests htat can get quite expensive.
This kind of situation is one of the core benefits of saving, as through saving, you can plan on to achieve these goals and success in life.
- Identify Unnecessary Spending
As also discussed above, unnecessary spending is always pushing you down and believe it or not, play a major role in mismanaging your budget. To clarify, let’s consider an example from my own personal life. Before, budgeting one of my biggest unnecessary spending was on purchasing bottled water. Even though, at face value, the price of the bottled water seemed quite low. However, after budgeting I came to realize that around 30% of my total income was spent on purchasing bottled water. Like this example, there are many other, seemingly small expenses that have a major share in our expenses. Therefore, it is essential to budget for these type of expenses and cut them off as soon as you can.
- Open ways for Continuous Improvement
Benefits of budgeting are not only restricted to the current month. In fact, it is essential to keep a keen eye on your expenses for continuous development and control of your budget. Many applications have an inbuilt function of showing your progress using visuals. These visuals often tend to motivate you and help you budget your money more efficiently.
- Easy to Communicate
At times, it becomes quite frustrating to explain your expenses if you are dependent on someone or vice versa. This is extremely true in case of students having to explain their expenses to parents. Budgeting, however, makes it easier to communicate these expenses as they are in numbers, not just abstract words.
- Planning to Spend is Easier
A budget for a month is not always fixed for the whole year as our expenses are often varying. Some months, you may not have to spend at all while in other your overall income might not be enough to cater for your expenses. In such a scenario, budgeting your money helps a lot. Through budgeting, you now know exactly how much to spend in the relatively less expensive months, while save up in advance for the expensive months. In this way, you not only control your money in the present but also dominate your future expenses.
- Helps You Become Part of Investments
Once you begin to master the art of budgeting, you begin to develop the skill of managing your resources effectively. This is one of the key components of becoming a successful investor. Hence, budgeting does not only teach you how to manage your current income but also teaches how to make more money simply through management.
- Make Every Dollar Count
In budgeting, since every dollar gets an assigned purpose, you begin to value your money. This means, that now, you don’t just go ahead and spend your money on whatever you like. Instead, budgeting makes you conscious of your expenditures and you become more aware and careful of your expenditures then you were ever before.
- Identify yearly trends in spending
This step again deals with the planning part. Different applications help you identify the trends in spending and gives you a clear picture of your money flow. This information, then, helps you identify your weaknesses as well as your strengths. As you go on, you can use continuous improvement and decrease your overall spending to save more.
- Organize in Other Fields of Life
Lastly, once you begin to organize your money life through budgeting, it will become quite easier to organize other parts of your lives such as your calendars, assignments, and other such activities. This is because accomplishing the art of budgeting is fairly easy by following a few simple steps. But at the same time, you will also become more believing in yourself to start organizing the rest of the factors of your life.
Conclusively, there are a plethora of reasons that dictate the answer to the question why is budgeting important for everyone and is fairly easy to achieve. The steps involved in the process of budgeting can help you make that dream into reality whether you use it on a simple excel sheet of your own or by the help of different applications. Regardless, budgeting, if followed correctly promises to make your everyday life better for you.