Why You Need a Personal Budget
In today’s world there are very few people who take the time to create a personal budget. Some people do not see the value in doing so; other people simply have no desire to restrict their spending habits. People have reached a point in our society where they buy on impulse with no thoughts to the consequences. In order to reverse this trend people need to become more responsible with their patterns of spending. One of the best tools to help an individual accomplish this behaviour is the personal budget.
A personal budget is a financial plan which sets limits on the amount of money that will be spent on each category of expenses in a given month. A good budget will take into consideration such factors as: the amount of income being received, outstanding debt, retirement savings, and an emergency fund. Many people have no idea exactly where or how they spend a good portion of their money. How many times have you taken money from the ATM only to realise a couple of days later that it is gone? Many times it is difficult to remember how exactly you spent the money, and often times this money is wasted on frivolous purchases. A budget will help prevent this from happening by making a person accountable for the money that they spend. If a person only has $50 left for monthly food expenses then they may decide to forgo purchasing that fancy $3 drink.
Another great benefit is that a budget portrays an accurate idea of how much an individual can actually afford to pay for various consumer items. Whether it’s a house, a car, or a new TV, a person will be able to determine whether or not a certain purchase will fit within their monetary constraints. This acts as a safeguard against getting in over your head financially. It is important to realise that simply creating a budget is not enough. This in and of itself will do a person absolutely no good if he does not discipline himself to stick to it. At times this will be very difficult, particularly if a person has established the habit of freely spending without a second thought. However, the long-term benefits of financial freedom, debt free living, and a comfortable retirement far outweigh any potential difficulty.
With all of the advantages that are associated with living on a personal budget it is no wonder that many people are beginning to implement this system into their own lives. For a great number of individuals the results over time have been nothing short of amazing. People are beginning to work their way out of debt while at the same time meeting their expenses, and placing money into savings. However, it is important to realise that there are potential pitfalls that may be encountered along the way. If people are aware of these hazards then they are far less likely to be negatively affected by them.
Credit Cards. These little pieces of plastic can often cause a great deal of temptation and trouble. It is not uncommon for a person to make an unwise purchase, which they would not otherwise make, because they had a credit card handy. The solution to this problem for many people is to get rid of their credit cards and begin paying by cash or cheque. Some prefer to keep one card for emergency situations but it is best to keep this out of reach, and not in their wallet or purse.
Impatience. Problems often arise when people set financial goals but do not have the patience to complete a savings program. For example, let us say that an individual begins setting money aside for a new car. However, after a couple of months they happen to find a car that they love, and instead of waiting, they go ahead and make the purchase. This could potentially create some serious financial strains. It takes real discipline to prevent impatience from breaking your budget.
Lack of adjustments. A budget is created using a set of expenses and income figures that are current at that time. As these figures change it is important that the budget is adjusted to reflect these changes. Failure to do so could lead to some major deficits.
Holidays. Unfortunately, many people do not consider holidays at the point that they are creating their budgets. As a result, a proper amount of money has not been set aside for gifts, food, etc. These items should be factored in and saved for throughout the entire year.