Abstract
Budgeting is an important activity for everyone; individuals, households and companies alike. In simple terms, budgeting is summarizing expected income and expenses for a given period (Peetz and Buehler). Budgeting is an invaluable tool because it helps one to prioritize spending and money management even with the least amount of income. As we do not always have money to spend on everything we want it is important to get used to this practice in order to focus the income on matters that are most important. Why is this important exercise? Planning, forecasting and monitoring of one’s budget can help in identification of wasteful expenditure that can be cut off without many implications on one lifestyle. Additionally, budgeting helps one to achieve his or her financial goals. Many people usually have a problem of tracking their expenses and are usually in shock after finding out how they spend their money. With a budget, you will manage to keep these shocks and stresses at bay as you already know how much money goes into what. On a personal level, it is even more important as there is not one to gauge how you spend your money it is up to you to apply that spending gauge. Do you want to go out for a vacation with friends? Or have unexpected medical bills? A budget is an instrument that gives you financial clarity during such times. Budgeting is a never ending process and at the end of the budgeting period, looking back at one’s spending can help determine the good and bad decisions (Shahrabani). This will help the planner to use money even more wisely. Additionally, in using less than one’s income an Individual is able to save and therefore experience exponential growth throughout his career by indulging in more profitable investments.
For a 22-year-old graduate who has just been employed into his first job, a myriad of issues that come to mind but only a few are critically important. The core principle of budgeting is that you should never spend more than you earn and the Monthly Personal Budget Planner below helps in doing just that.
If the expenses are less than the income that is a good sign but if for instance you get that you spend more than your earning some adjustments will have to be made on you expenses section in order to even the figures or make it lesser (Alesina and Perotti).
On the budget amount column, the planner should put the forecasted amount for next month’s earnings. Salary is fixed from the employer and if any other commissions are added it is good to incorporate them into the budgeting schedule. The $ 200 is supporting income from parents. Such incomes should also be recorded. As for the expenses, some are fixed while others can be adjusted depending on the individuals use. Fixed expenses in this instance include Mortgage/ Rent, Taxes, Insurance, Sewage, Cable, Auto Insurance, Car Payment, Credit Cards/ Debt, Education loans (Guthrie and Nicholls). All other Items on the budget are fairly adjustable, and the individual can use these to regulate the budget total on the occasion where the expenses exceed the Income. The Saving section is paramount for the constant retirement reserves and also any other project that the individual is planning to initiate.
The Actual amount section portrays how exactly the money was used compared to the early forecast in the budget section. While it is not mandatory to match the budgeted amount section, it is recommended to use the budgeted amount or less but If circumstances do not allow, you can exceed the budget amount slightly (Kung and Huang).
In the notes section, it is good practice to document briefly the importance or priority of the payment so as to remember. Again, not a mandatory section, but recommended. Below the totals the surplus/ deficit rows compare the expenses and income totals. A surplus is good and is always welcomed, any more money left can be used for future investment or allocated to any other important, high priority items in the expenses list. A deficit, on the other hand, denotes bad financial discipline and improvements could be made.
Works Cited
Alesina, Alberto, and Roberto Perotti. “Budget Deficits and Budget Institutions.” Fiscal institutions and Fiscal Performance I.January (1999): 13–36. Web.
Guthrie, Cynthia P., and Curtis M. Nicholls. “The Personal Budget Project: A Practical Introduction to Financial Literacy.” Journal of Accounting Education 33.2 (2015): 138–163. Web.
Kung, Fan-Hua, and Cheng-Li Huang. “An Examination of the Relationships among Budget Emphasis, Budget Planning Models and Performance.” Management Decision 51.1 (2013): 120–140. Web.
Peetz, Johanna, and Roger Buehler. “Is There a Budget Fallacy? The Role of Savings Goals in the Prediction of Personal Spending.” Personality and social psychology bulletin 35.X (2009): 1579–1591. Web.
Shahrabani, Shosh. “The Effect of Financial Literacy and Emotions on Intent to Control Personal Budget: A Study among Israeli College Students.” International Journal of Economics and Finance 4.9 (2012): 156–164. Web.
