Budgeting is a term which is used in both corporate and personal world! It refers to drawing a blueprint of your expenses and revenues to devise an income and expenditure plan. This helps in having a clear picture in your mind of the expenses that you can dedicate towards your lifestyle. If you want to make it more granular, you can spread it out in various segments such as groceries, parties, rent, shopping etc based on your preferences. Budgeting is a great tool to save your finances and achieve the targets by keeping a strict eye towards deviations. Here is how it can save your finances:
- It gives you direction: Sometimes the hardest thing about saving money is getting started! Budgeting helps you in developing simple and realistic plan which you can customise as per your inclinations. You can start with small savings and then increase the intensity as you move forward. It gives you direction for saving for your goals! You can start with keeping $50 aside every day!
- It gives you a target, inculcating a saving habit: If you do back calculation (estimating the corpus that you should have in your hand and then the yearly savings you need, to build it), you would have a figure in your mind of the expenses that your pocket permits. In case you don’t meet your target in a certain month, you should know how to compensate in next month!
- It makes you organized: If you are doing budgeting for your finances, you should record the expenses that you do. You can prepare an excel sheet or use apps like Splitwise to record the payments. Include your credit card spends too! This helps you in having a correct estimate of your expenses and comparing it with last month to calculate the deltas and variations if any. This way you can control the expenses and instead of spending impulsively, you can make wise decisions.
- It helps you planning for contingencies: You should transfer some amount in your emergency or contingency fund to factor for unforeseen events. You don’t want your budget to go for a toss on account of expenses that doesn’t occur every month. For example, your medical premium, car insurance etc. There is no excuse for deviations, if budgeted money is spent on non-budgeted items, it should have a proper reason. You should take corrective action if you identify a source of waste so that its not repeated.
- Aligns priorities: Sitting with your spouse or family to build a comprehensive budget helps in addressing underlying priorities. For instance, you may be planning to buy a house with yearly bonus but after discussion with your spouse, you realised that you need to save for admission of your kid in college. It helps you in finding a common ground which helps you in managing finances. Budgeting helps in ensuring that the debt doesn’t overweigh your monthly finances. It creates a financial margin because as less money is spent, excess income becomes available. Visit Solidgroundfinancial.org for more posts on budgeting!
