“Too many people spend money they haven’t earned, to buy things they don’t want, to impress people that they don’t like.” – Will Rogers
All of us are familiar with the concept of Budgeting. It is one of the most crucial financial habits you can pick to lead a happy and peaceful life. Those who have been practicing this for a very long time would very well be able to relate to this, but the other group who hasn’t experienced the benefits of budgeting is sure to be wondering as to why this concept is considered a prominent aspect of personal finance.
So what do you think makes budgeting so important?
Budgeting allows us to limit our spending, keep track of our expenses and increase our savings.
Moreover, it enables us to make better financial decisions, stay prepared for emergencies, clear our financial liabilities, and stay focused on achieving our long-term career goals. In other words, it is the building block of sound financial management.
Let us now go deep into the importance of budgeting and why it is the determining factor of our financial well-being.
i. It helps us cut-down our expenses: Operating your finances in the absence of a budget always sounds risky as it doesn’t have anything that holds us from spending too much. You might have a general idea of your monthly expenses, but the absence of a budget can ultimately make us a spendthrift. However, having a budget helps us closely monitor our spending habits, understand the impact of seemingly small expenses, and control our expenses.
ii. Helps us work towards our long-term goals: Maintaining a budget helps us keep a close watch on our long-term goals and take all the possible efforts to achieve them. On drifting aimlessly through life, there is a very high probability that we spend recklessly, leaving us with peanuts to achieve our goals. Having a budget helps us chart our goals, save money, keep track of our progress, and ensure that we achieve them within the given time-frame. At times, we might be faced with a situation where we are tempted to buy the X-box game in the store next door, but just a simple reminder of our goals can help skip buying the gaming console.
iii. Helps us find financial contentment: Financial contentment is a crucial component of good financial behavior. It helps us stop ourselves from spending the money we don’t have, thereby helping us enjoy our financial journey. Spending all our time focusing on the finances of others shall never help us find contentment. On the other hand what we should be doing is to focus on our life, our money, and our decisions. Each time we sit to create, assess, refine, or log expenses into our budget, we are making a conscious effort to focus on our finance than that of others. With time, we will reach a point where we lose complete control of what others do with their money. And when this happens we will get to experience how it is to be financially content.
iv. Keeps us organized: Disorganization is something that doesn’t go together with personal finance. We can stay assured that in the absence of a personal budget, our financial life would be a total mess. Juggling with monthly expenses, debt payments, emergency expenses, etc., the possibility of incurring some of the miscellaneous expenses that force us to over-spend cannot be ignored. Even before you realize, you shall be worried/ stressed about how you shall make things work. Things seem much easier when we lead an organized financial life by living within the budget.
Forbes.com shared a story of how Mr. Craig’s (a person employed in the advertisement industry) and his wife’s habit of budgeting allowed them to achieve the goal of saving enough for Mrs. Craig’s maternity leave and the months that followed. They did this just by putting Craig’s earnings into a savings account and living with his wife’s earnings alone. Starting with a clear plan, followed by cutting down expenditure on non-essential items, they had enough savings with them that allowed them to lead a peaceful life and buy their dream house, a few years down the line.
Thus, we can say that having a personal budget has its plus points however time-consuming the process might seem. So now, it is paramount that we make a list of our monthly income and expenses and set aside money for each of them to lead a happy and peaceful life, by sticking to the budget.
“If we command our wealth, we shall be rich and free. If our wealth commands us, we are poor indeed.”
Idea & Concept: Suvin David, Research Analyst / Faculty
Content Development: Aswathi Satish, Niyog Consultancy Services Pvt. Ltd.