Budgeting is one of the most basic and effective tools for managing your money. But many people tend to avoid making a budget because it is extra work or they feel as though it means restricting themselves from enjoying their money.
If you’re serious about your financial wellbeing, then budgeting is something you absolutely need to do. Much like you wouldn’t build a house without a blueprint, you can’t build stable finances without budgeting.
Advantages of Budgeting
Budgeting clearly shows you how you allocate your money. This allows you to make informed decisions about what you can spend money on without exceeding your financial limitations.
Keep You Focused on Your Financial Goals
Rather than preventing you from enjoying things, budgets allow you to plan. This means you can spend money on the things that you enjoy while having enough to meet your financial obligations.
Keep You Aware of Where Your Money is Going
Budgeting prevents you from wondering where your money is going and gives you a clear idea of just how detrimental some expenditures can be to your long-term finances. This awareness motivates you to reduce or eliminate unnecessary or excessive spending.
Help You to Organise Spending and Savings
Dividing your money into categories of expenditure and savings will help you to consistently meet savings goals and stay on top of expenses. This also means that you have money for leisure or unexpected situations.
Provide Early Warnings for Potential Problems
Budgeting gives you a ‘big picture’ view that allows you to see potential money problems in advance and make adjustments before a problem occurs.
Help You to Determine Whether You Can Take on Debt
Taking on debt isn’t necessarily a bad thing if it’s necessary, if you can afford it or if it’s good debt. Budgeting can show you how much debt you can realistically take on without it damaging your financial position.
How to Budget
A budget can be as simple or as complicated as you like. The important thing is to identify a timeframe and ensure that spending occurs within the framework that you create. We find that a monthly budget tends to work best in terms of providing an accurate picture of your finances that you can keep track of.
Annual and quarterly bills are relatively easy to put into a budget, since we know when they come in and approximately how much they cost. Add up supermarket receipts from each week or fortnight into a monthly total under a single ‘grocery’ category.
Discretionary spending like gifts, entertainment and holidays take a bit more time to work out. But this is the area that offers the most room for savings. The point isn’t to remove discretionary spending altogether but to be in a position where you can identify specific costs and choose to reduce them.
Use our budget calculator to get started and get in touch for more information.
Luckily, there is a whole range of free budget planning apps and tools that make budgeting easier. Getting help from a financial professional is even better. No matter how you approach it, budgeting will only work if you stick with it and use it consciously.
If you’d like friendly, practical, and easy to understand tips about budgeting, get in touch with Kaboodle Finance.