Why is budgeting so important?

The most simple definition of Budget is that it’s a statement which tells how much are you earning & where are you spending. But most of the people have the mindset that budget means restriction, reduction in expenditure. I will share an example here for better understanding. Can you tell me why breaks are important in cars? Most of us will have a common answer, to reduce the speed of the car. But if I tell you, to gain more speed. Because by using breaks we can stop where we want, after attaining top speed. In short breaks gives more control. Similarly budgeting will give you freedom to spend more where there is a need.

Benefits of budgeting

  • You can spend money freely without any guilt. How is it possible? If you can identify the expenditure & also the amount that you have to spend before the months start, then you will have a big power i.e, Freedom to spend money. Suppose you have decided to spend a specific amount of money for shopping and watching movies in the theatre. But at the end of the month you come to know that you have not spent that much & some amount is left with you. Now, you have the freedom to do anything with that money without any guilt as you know that you have saved that amount & moreover you can invest that too. But, Obviously It’s depends on your choice only.
  • You can control your overspending. When you spend without writing, you do not know where you are overspending? And if you do all these things by writing, then you do not overspend at all, because at the beginning of the month you had decided where you are going to spend. If you overspend, you will be able to identify in which area you are overspending & where else you need improvement?
  • Third biggest advantage is getting a reality check. You can find out the speed at which you are spending. We shall know beforehand if it is enough to achieve our short-term and long-term goals with the amount of money we are able to save in a month. That means you can focus on your financial goals. If that amount of money is not enough, then we need to change our spending habits. But, if you do not make a budget then you will never know this on time.
  • Fourth advantage is you can save more money. After analyzing your expenses, you can identify multiple opportunities to save more money. Which otherwise you do not even know? With that money either you can pay your debt which you already have or you can invest more.
  • Last but not the least, you should always have control of your money. Every business, even country, makes its own budget. Do you know why; So that they can spend money efficiently, they get opportunities to save money as well as more money can be allocated for important things. And ultimately we could grow our money. That’s why businesses & countries grow, GDP keeps on increasing. As soon as we make a budget, we get a true picture. Bird’s eye view is available on your money and it gives you more control over money. 

There are several ways of budgeting. The easiest & oldest method is envelope budgeting. 

In this method you have to identify the different heads where you will be spending for a month. Such as School fees, grocery, Electricity bill, Fuel for Bike/Car, House Rent, Tuition fees, Travelling etc. For each head you have to keep one envelope, put money inside it as per your budget and keep it safely. At the end of the month you will understand where you are spending more & where you are saving. You will know about your present financial condition & also you will know about the area where you need improvement. When you start doing it continuously you can save more & ultimately you will have full control over your money. 

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