When it comes to managing your money, most people would rather just wing it and hope for the best. But you know that being on top of your finances is a key part of achieving your financial goals. Even more, you probably somehow feel that this is the right way to do finances. You have a hunch that with a well-balanced plan, you can keep your spending in check and your money growing at a steady pace. No matter how much money you have to work with or how complex your financial goals may be, there are a few practical strategies you can use to manage your money more effectively. The question is if budget planning is one of them. In this article, you’ll learn about the benefits of budget planning and some key considerations when creating your own personal budget.
Just as not everyone is an athlete, not everyone is good at budgeting. Before you start, you should understand the benefits.
Why bother with budgeting and planning?
Because it lets you see how much money you have coming in and heading out, and because it gives you a framework for how to spend it. It also helps you make informed adjustments if they are necessary.
Scientific Research about Budgeting
The current body of scientific research is pretty limited if we look from the perspective of studies done on budget planning. There are some research papers available, however, they are more focused on the understanding of personal finance, setting up goals, or financial advice. The best research paper that I found on this subject is Investigating the Importance of Creating a Personal Budget among Millenials, their Perception and Satisfaction done by the Eastern Mediterranean University, Famagusta, North Cyprus. You can download this paper here, it’s a very interesting read. The idea behind this study was to look at the personal views Millenials have towards building their own budgets. A survey of 161 participants was used and the data was analyzed. And the results showed that young people acknowledge the importance of building a budget. They create personal budgets and see the need of building one.
The benefits of budgeting
1) Budgeting helps you see your money in a whole new light. When you’re not keeping track of your spending, it’s easy to see your income and expenses as separate entities. But when you put your finances into the context of your overall financial plan, you start to see how they fit together. And budgeting is one tool in your arsenal, that will help you do this. In other words, it helps you look at money in a new way, with new information brought to the table, that was not visible before.
2) Accountability: A budget is a clear and concise record of your financial progress. You can use your budget as a tool to try and enforce accountability on yourself. This can be the first step in a journey where you will try to stop putting the blame on other external factors. With a concise record, you will be able to identify the real problems behind your financial issues. And who knows, maybe sometimes you will be the problem, for example, if you have obsessive spending habits, which a lot of people don’t notice until all spending is written on paper for a few consecutive months.
3) Helps you prepare for the future. Budgeting gives you a clear picture of your income and expenses, which can help you plan for any unexpected expenses. Even just knowing that you can save 10 bucks a day can give you the necessary confidence that you will be able to overcome any obstacles in the future. But in order to know how much money you’re saving, you need to calculate your revenue and expenses. If your future is a constant worry, budget planning can be a good solution to alleviate some of that stress.
4) It can help you sleep better at night. Budget planning could be a welcome exercise for people who are frequently consumed by questions like: “Will we have enough money for food?”, “Will we be able to pay our debt?”, “Can we afford this expense?”. Not only will it give you a clear and concise answer, but you will be able to take measures ahead of time if and when your financial situation starts going downhill.
5) It will help you avoid going into debt more easily. Because budgeting gives you a clear picture of your income and expenses, you will know if a particular expense will get you into debt. And you will probably think twice about making it. Maybe it’s not really worth it. Think about it, how could you do this if you wouldn’t even know you are getting into debt? With such easy access to loans, it’s our responsibility to control our impulses. That is why all the loans seem so attractive, it’s your responsibility to know how deep your pockets go and how much farther you can stretch them.
6) It helps you find out how much you can borrow. This is from a different perspective than the one above. Being able to save on a regular basis, say 100 USD/month (which wouldn’t be easy to do without the constant use of a budget planner), can help you take out a loan for something essential. Without financial clarity, you probably wouldn’t even think that that would be possible. For example, an online video course that teaches you more advanced programming. You might not have 1,000 USD to buy it now, but knowing that you can save 100 USD a month can give you the confidence to take out a 10-month loan. Moreover, the newly gained knowledge from the course can help you earn more, and maybe even earn you an advance at your job, and you’ll be able to pay off the loan even sooner. A small loan can help bring to life valuable examples of business ideas, providing the financial means to turn a vision into a thriving reality.
Conclusion:
In a way, people don’t like budgeting because it’s like dieting. They think they are depriving themselves of something they want. But in reality, it’s more like making a pie. You have to think about how many people you are serving, what kind of pie crust you want, what fruit you want, and so on. And the good part is that in the end, you can even enjoy it. So, what do you think?