Budgeting is the process of calculating monthly expenses from one’s income. Developing budgets allows individuals to know in advance, whether they would have enough money after paying for all expenses to spend on the things that they want to do like going to the movies or going on holidays. Budgeting helps individuals to keep their priorities straight. With budgeting, they can focus on and prioritize the list of things to do and spend their available budget accordingly. In lament terms, budgeting stop individuals from wasting their money on unnecessary things that they do not need.
Keeping a monthly budget is important as it allows us to create a spending plan for our money, and ensuring that we will always have spending money for the things that we want or need. The importance of budgeting is very well summarized in this quote, “In this tough economy where job losses are rampant, home values are in the toilet and wallets are tight, budgeting is more important than ever” (Bell, 2009).
Moreover, maintaining a monthly budget will also allow us to identify extravagant, wasteful expenditures and adapt to changes in our financial situation quickly. Budgeting also allows us to reach our financial goals. Saving is also another big advantage of keeping a monthly budget. We can identify extravagant expenditures and cut down on these expenditures. When we cut down spending money on unnecessary and unimportant things, we can save money. It is always a good idea to save money as it will help us in the future by having more money to fulfill the need in the time of financial problems. With a monthly budget we can realize our long-term goals and work towards achieving them by not aimlessly spending money on everything but by realizing our goals, saving our money, and making our dreams a reality
Another main reason for keeping a budget is that it stops us from spending money that we do not have. With so many captivating luxurious products available, one cannot help but want to buy them by borrowing. Most of the times we do not have the money, but we still buy these products thanks to credit cards. Thereby, accumulating credit cards debt that is not only cancerous to our financial situation but our health also. Credit card debts increase our expenditures and stop us from being able to save money as the majority of our money goes into paying off the debt collected. Nowadays, financial institutions charge interest on debts and due to this, it has become increasingly difficult to pay off obligations related to the debt but also to save money.
Here is an example of why budgeting is important. My total income is $3,000.00. My semester expenses are $1,845.00 and my monthly expenses are $830.00. My total expenses (semester + monthly) are $2675.00. After subtracting my total expenses from my total income I have $325.00 left. The amount of money I have saved is $325.00. Now, I can use this money to do the things I want. The money saved can be used for emergencies. Since we saved a good amount of money we would be able to sleep at night, knowing that if a crisis befalls us, we would have the money to spend.
Reference
Bell, A. (2009, November 5). 6 Reasons Why You NEED A Budget. Retrieved from http://www.investopedia.com/financial-edge/1109/6-reasons-why-you-need-a-budget.aspx
