Budgeting means creating a plan on how to spend your money. It enables you to decide before hand whether you will have enough money to do the things you need to do or to get an alternative. It basically helps you control your spending, track your expenses, and save more money.
Budgeting is a very essential key for financial management and it can be reviewed overtime. Most times, we have a lot of things we need money for but with budgeting, you tend to prioritize and focus on the most important things to avoid wastage.
Companies reevaluate their budget from time to time usually once per fiscal year. With budgeting, you have a guideline to compare actual results in order to see how it varies from the expected result.
It’s important to note that budgeting is not forecasting. In financial forecasting, future financial outcomes are determined by examining past results or data. This way, you are able to estimate results based on past data.
Creating your first budget might be somewhat challenging but once you do, begin to use it and see if it works well for you. If it does, you may want to create a budget for 6 months to a year. When you do this, you can easily forecast which months your finances will be low or high to minimize spending and decrease debt.
Financial Goals and Emotions
Think back at the last time you got an ice-cream or a doughnut or something nice just because you were sad or even very excited. How much did you spend in total? Now think carefully and analyze.
Have you ever heard of emotional spending? It is when you buy something you may not need to make you feel better or ease your emotions. It can be better termed as “impulsive spending”. Some common triggers include jealousy, guilt, sadness, excitement or achievement.
For some of us, emotions and money are closely related and each time we spend we feel a huge satisfaction within and this is a huge problem when you are trying to stick to a budget. Just try and be aware of this? Ensure that you always try to remind your self why you decided to create a budget in the first place. This could help you keep your eyes on the prize.
CHARACTERISTICS OF BUDGETING
- It helps estimates revenues and expenses.
- Cash flows are easily estimated
- It decreases debt.
- It helps to ensure control over the cash, expenditure and sales.
- It helps to predict future sales, costs of items and other expenses to earn an estimated income and decrease the risk of losses.
STEPS TO CREATING A HELPFUL BUDGET
- Analyze your earnings and spendings
To make a budget, you have to start by critically examining your earnings and what your money goes into. It could help if you break down your budget into 3 parts- Income, Expenses, and Savings.
When you finish mapping out your income and calculating your expenses, the rest is your savings which could also include those you have invested.
Now that you have been able to map out the 3 points above, you can organize your spending without disrupting your lifestyle. You can start by deciding what you want. For example,
-I want my children to go to the best schools and have the best education.
-To achieve this, you make a budget of how much you earn, your expenditures, and current savings.
-What will the estimated school fees be?
-Properly analyze ways or lifestyle changes to help you get the desired result you need.
-Map them out and make a budget.
-Work them out.
– 3. Access and adjust with time
As time goes on, you keep reviewing your budgets and making changes. Track your expenses monthly to ensure you are still on budget. At this point, I must mention that your budget should be flexible. There should be a plan and a fund attached to each budget
4. Staying on course:
Setting up a budget is easy but staying dedicated is where it becomes difficult. What is your target? Why did you start a budget to begin with?
As you continue in your budget plan, ensure that each day or month brings your closer to your desired expectation. Start small, walk with realistic goals. Even when you fail, keep at it and with no time you will experience some progress.
With budgeting, you must ensure that you do not over spend and do not starve your self. Just be moderate.
IMPORTANCE OF BUDGETING
1. It helps you stay focus on your actual goal
What are your goals, ambitions and expectations? What kind of future did you expect to have? What do you want your life to become? When you budget, you figure out all these goals and expectations and work towards achieving them. Without goals and proper planning, you waste your money on frivolities. A budget helps you stay on track.
I bet you do not want to spend the rest of your years after retirement working or begging for money. I’m sure we all want a blissful and comfortable retirement. If that’s the case, budgeting is for you. It helps you spend wisely, leaving out something for the near future. Controlling your finances will have a very tremendous impact on your life.
Budgeting allows you to stay in control of your money and financial life.
3. It prepares you incase of an emergency:
There are lots of unexpected occurrences we encounter everyday. This might include damaged appliances, plumbing issues, broken furnitures, health emergences, etc. These things can happen even without us expecting them to.
How do you fix issues like this? With proper budgeting and saving, you have something left behind for situations like this incase they arise and you are not caught by surprise.
4. Budgeting helps you invest:
When you invest, you have your money to work for you. This is a unique way of making money. Yes, We have to work to make money but there is a limit to what our body can handle and how much time you have in a day.
When you invest your money somewhere, it grows and you raise passive income regardless of how low they are. So you can still be doing your job and getting paid while earning from your investment. you can do this by investing in stocks, bonds, mutual funds, or real estate, etc. You can also consider starting your own business.
But before you decide to invest, you must create a budget to ensure your accounts are being managed accurately. You cannot invest something you do not have.
5. Budgeting helps address and control poor spending habits
I’m sure most of us are aware that handling your finances without a budget can lead to wastage. Even though we know how much you get from your salary or business, if you do not have a way of tracking your finances and organizing them, you will be at a loss and this will lead to a bad spending habit.
Therefore, budgeting is very vital if you want to monitor your spending and keep it in check. When you budget, you are able to decipher how much comes in and goes out. That way saving is made possible and you are able to build a good spending habit.
Example, the money you spend eating out during your lunch break everyday, if you take home-cooked meal twice or trice a week and eat out twice a week it will tremendously decrease your spending and you save more.