What is budgeting? In accounting terms, budgeting is a process through which one designs, implements, and operates a budget. A budget is an estimation of one’s income and expenses for a certain time period.
Why Is Budgeting Important?
Why is budgeting so significant? Simply put, budgeting helps you to better control your spending habits and in the process helps you track your expenses as well as increase your savings. All in all, budgeting aids better financial decisions, emergency preparations, less to no debts, and a better financial life. Below are more in-depth reasons why you should start budgeting.
Prevents Unnecessary Debts
It is very easy to fall into the trap and habit of spending finances you do not have and the main cause of this is credit cards. They allow you to make use of the money you are yet to have thus leaving you in debt. Creating and sticking to implementing a strict budget can help to alleviate indebtedness and or even prevent you from being in debt in the future. This is because budgeting makes you aware of how much money you earn and how much you can spend and still remain within your spending boundaries.
Aids In a Better Retirement
Budgeting essentially plans for the financial future and this can be either a long-term or short-term plan. Spending your finances responsibly and saving for the future can help you enjoy a much more comfortable future than that of a person who has accumulated debts. If in the process of budgeting you do not forget to make contributions to your retirement fund, you will have enough money to help you live comfortably after retirement.
You are Always Prepared for an Emergency
Anything unexpected can happen on any given day and it is always best to be somewhat prepared. When designing a budget for yourself make sure to include an emergency fund consisting of about 6 months of living expenses. This will prevent you from having to take a loan when in an emergency thus preventing indebtedness.
How To Budget
Budgeting may differ as there are different terms one can budget for example most people budget on a monthly basis and some for every three months and so forth. However, all that aside there’s a simple way for one to budget regardless of the term of their budget.
- The first step is to calculate your income and then select a budget method that best suits you. After choosing your budgeting method you should monitor its progress.
- The best and simplest budgeting framework rules the 50/20/30 rule, try it out.
- Set aside 50% of your income for your needs, these include things such as your rent, water, lights, food, insurance, transport, and so forth.
- 30% of your income should be set aside for your wants.
- And the last 20% of your income should go toward savings as well as paying off debts.
- The final step is to keep an eye on the progress and adjust where adjustments can be made.
There are many budgeting apps out there on the market as well that you can use and save time as well as money. Some include:
- You Need A Budget Finance(YNAB)
- Wally: Smart Personal Finance.
- Fold – Savings, Budget Tracker.
- Bills Organizer and Reminder.
- Money Manager: Budget planner.
- Spending Tracker. Finance.
Investing can be another great way of having money that you’ve saved up not only sit around but grow in the process and one of the best ways to do this is by investing in the stock market. Read through the Matt McCall review for different reviews on many topics involving investments.
Budgeting is not a simple process, it takes trial and error and a lot of monitoring and adjusting. However, it is a sure way to achieve a comfortable lifestyle at present and in the future.