Causes And Effects On Not Keeping A Personal Budget Essay Examples

A personal budget can be described as an estimate of the anticipated costs, resources and revenues of an individual over a specified period. When used properly, it can be used to estimate the future financial needs and sufficiently cater for the current financial obligations of an individual. A personal budget is a critical contributor to a reasonable financial stability of an individual. When personal budgeting is taken into consideration, it helps an individual to escape any personal financial crisis by ensuring that they spend their income on essential expenses. When prepared objectively, an own budget shows the truth about personal financial spending habits, need for larger emergency funds and guides an individual on areas that they need to take care of in their spending habits. Personal budgeting gives individuals a road map towards financial stability since when people are unaware of their financial status, they are bound to overspend beyond their abilities. However, in reality, most individuals do not keep personal budgets for various reasons. This is because they do not consider the negative effects that failing to maintain a personal budget has on the economy and their financial status (Manthorpe & Samsi, 2013). This paper is a critical analysis of the causes and effects of not maintaining a personal budget. The paper is aimed at exploring the relationship between how not marinating a personal budget affects the personal finances of an individual and how this, in turn, has an impact on the national and global economies. As such the paper will aim at finding out if financial institutions are affected when individuals do not maintain personal budgets. It moves from the causes which lead to people not keeping a personal budget to the effects of such actions. It thus finds out how critical things can be when individuals do not maintain a personal budget. The paper proposes that there is an active casual-effect relationship between failures by individuals to maintain a personal budget and their personal, national and global financial stability.
Individuals cite various reasons why they are unable to maintain a personal budget. One of such reasons why people do not keep personal budgets and which has been retaliated by most people is the lack of knowledge on how possessing a personal budget can help them in their personal financial management. Most individuals who do not keep personal budgets lack the skills and knowledge on how to construct personal budgets properly. They are unaware of the procedures and steps of making a budget balance, correctly allocating funds and the priority areas that need more consideration when designing a budget. Also, most individuals do not understand how to use tools such as Microsoft Excel which is an important application for making a budget (Slasberg, Beresford & Schofield, 2012). People who lack the knowledge on how to construct their personal budgets also lack planning skills in their daily lives.
The second reason why individuals do not keep budgets is that some people have an assumption that they make more money from their careers and businesses such that they do not require a budget. This creates a toxic attitude that budgets are unnecessary tools when people have their incomes and the capability to take care of their current personal needs. This creates the perception that they are financially secure, and thus they do not need an own budget. This is a false intonation that can feasibly lead to a disaster in life. This is because human beings do not know exactly when an emergency can strike and at such times, even individuals making enough money today are prone to financial instability. Emergencies occur without any notice, and personal incomes could be wiped out by a severe illness of family members or in the case of an unexpected unemployment. Individuals that earn enough income presently to cater for their present needs have the tendency to assume that their current cash outflows and inflows will remain even in the future thus failing to appreciate the need to plan for the future uncertainties through personal budgets.
As highlighted above, most individuals cite different reasons for not keeping a personal budget. However, these reasons do not negate the need to examine the effects of not maintaining a personal budget on an economy and personal financial stability. This is because money is currently an important aspect in today’s economy. Therefore, individuals must not waste their income on excessive quantities or in purchasing items that they do not require. One of the major effects of not keeping a personal budget by an individual is that people do not save and cannot therefore achieve their financial goals. It’s a known fact that national and global economies grow when citizens achieve their financial goals such as when they have the ability to finance their children’s education, save, buy a house and have financial capability upon their retirement (Slasberg, Beresford & Schofield, 2012). Also, national wealth is created when people invest their saved money which is not possible when individuals fail to keep personal budgets that explicitly show the resources that they spend and ones they have saved. Personal budgets are simply investments in an economy when the target funds are available at a particular date after saving. Since saving and investment are critical elements in an economy that require strict discipline, personal budgets simplify them by ensuring that savings are not resources that have been left after consumption but are rather a priority. It ensures that people spend their resources on the most important items so that they can reach their financial goals at a particular time they have set. A high saving rate in the economy drives investment and ultimately economic growth but failure to keep a personal budget leads to low saving rates and hence lower economic growth rate since investments are also affected.
Failure to maintain a personal budget also leads individuals to problems in controlling their personal spending and end up taking debts such as commercial loans to satisfy their buying behaviors. Lack of a personal budget is a cause of unplanned expenses such as rent, mortgages and utility bills that may be unnecessary (Slasberg, Beresford & Schofield, 2012). When the current expenses surpass the current income, people resort to using credit cards hence accumulating debts to settle on a large bill that is due. By individuals having massive debts that they must service from their income, it means that they leave less to spend on investment. Also, significant amounts of debts have been identified as one of the leading causes of unhappiness and stress in life. People who fail to pay their debts on time, their accounts are frozen and hence they cannot access their money when they need during emergencies (Livingstone & Lunt, 1992). This makes loans to be much dangerous to the economy as they only benefit the lender when they earn interests but lead to individuals to be less stable with no control over their bank accounts.
In conclusion, it has been shown that people cite lack of knowledge and skills to construct a personal budget as one of the leading causes of failing to keep a personal budget. Toxic attitudes have also been identified as the second leading cause of individuals failing to maintain a personal budget since they think that they earn enough money and do not require a budget. Also, it has been identified that the primary effects of failing to keep a personal budget in the economy are that people do not save, hence do not reach their financial goals and ultimately do not make investments in the economy. By failing to keep personal budgets, citizens end up in more debts and have no control over their money. This means that they spend more of their money repaying the loan and hence do not have resources to invest in the national economy (Manthorpe & Samsi, 2013). Given the above discussion, it can be concluded that failing to keep a personal budget has a causal effect on the national and global economy. References
Livingstone, S. M., & Lunt, P. K. (1992). Predicting personal debt and debt repayment: Psychological, social and economic determinants. Journal of economic psychology, 13(1), 111-134.
Manthorpe, J., & Samsi, K. (2013). ‘Inherently Risky?': Personal budgets for people with dementia and the risks of financial abuse: findings from an interview-based study with adult safeguarding coordinators. British Journal of Social Work, 43(5), 889-903.
Slasberg, C., Beresford, P., & Schofield, P. (2012). How self-directed support is failing to deliver personal budgets and personalisation. Research, Policy and Planning, 29(3), 161-77.
Slasberg, C., Beresford, P., & Schofield, P. (2012). Can personal budgets deliver a better outcome for all at no cost? Reviewing the evidence, costs, and quality. Disability & Society, 27(7), 1029-1034.