Benefits of Budgeting
1. Gives you control over your money – A budget is a way of being intentional about the
way you spend and save your money. It is said that with budgeting, you control your money
and not your money controls you. Budgeting saves you the stress of suddenly having to adjust
to lack of funds because you did not initially plan how to spend them. It also helps you decide if
you want to sacrifice short term spending like buying coffee everyday in exchange for a long
term benefit like a cruise vacation or a new HDTV.
2. Keeps you focused on your money goals – You avoid spending unnecessarily on items
and services that do not contribute to attaining your financial goals. If you are working with
limited resources, budgeting makes it easier to make ends meet.
3. Makes you aware what is going on with your money – With budgeting, you are clear on
what money is coming in, how fast it goes out, and where it is going to. Budgeting saves you
from wondering every end of the month where your money went. A budget enables you to know
what you can afford, take advantage of buying and investing opportunities, and plan how to
lower your debt. It also tells you what is important to you based on how you allocate your funds,
how your money is working for you, and how far you are towards reaching your financial goals.
4 Helps you organize your spending and savings – By dividing your money into categories
of expenditures and savings, a budget makes you aware which category of expenditure takes
which portion of your money. That way, it is easy for you to make adjustments. Budget also
serves as a reference for organizing your bills, receipts, and financial statements. When all of
your financial transactions are organized for tax time or creditor questions, you save time and
effort.
5. Makes you decide in advance how your money will work for you.
6. Enables you to save for expected and unexpected costs – Budgeting allows you to plan
to set aside money for emergency costs.
7 Enables you to communicate with your significant others about money – If you share
your money with your spouse, family, or anyone, a budget can communicate how you use
money as a group. This promotes teamwork on working for common financial goals and
prevents conflict on how money is used. Creating a budget in tandem with your spouse will
avoid conflicts and resolve personal differences on how your money is spent. Budgeting
teaches family members spending responsibility and accountability.
8. Provides you with an early warning for potential problems – When you budget and take
a “big picture” view, you will see potential money problems in advance, and be able to make
adjustments before the problem appears.
9. Helps you determine if you can take debt and how much – Taking debt is not necessarily
a bad thing if the debt is necessary or you can afford it. Budgeting shows you how much a debt
load you can realistically take without being stressed or if taking the debt load is worth it.
10. Enables you to produce extra money – In budgeting, you get to identify and eliminate
unnecessary spending like late fees, penalties and interests. These seemingly small saving can
add up over time.
In a nutshell, the following are the 8 steps to creating your personal budget:
1. Set your goals
Goals are what you want to achieve in budgeting. Do you want to have a $5,000
savings within one year? Get rid of all your debt in three months? Or just have your
income and expenses balance out?
Goals should have a time-frame or a deadline. They should also be specific and can be
quantified (put numbers).
Also, goals can be short-term, medium-term or long-term.
Short-term budgeting goals are those that you want to achieve as soon as next week to
next month. An example of this would be to earn enough (specify amount in dollars)
for an inexpensive vacation or to afford a small home theater within one month.
Medium term goals are those you aim to achieve within one year. An example would
be to earn enough (again, specify amount) for a down payment for a house or a
car in 12 months.
Long term goal in five years or longer, like being able to pay off your mortgage in 10
years, or to retire in 20 years.
When determining your long-term goal, take into consideration the rate of inflation. The
amount you need to retire on in 20 years may be 100% more compared to the amount
today.
2. Figure out what you are worth
After determining your specific goal, the next step is to determine your current financial
situation – what you are worth in terms of money. You have to know where you are
before you know which direction you have to go to accomplish your budgeting goal.
