M o n e y B a s i c s

Why You Need a Personal Budget

In todays 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. Financial planners believe, however that a personal budget is one of the key foundations of sound personal money management. A personal budget is a financial plan which sets limits on the amount of money you spend per month.
A good budget takes into consideration:
1) The amount income being received,
2) How much debt you need to pay, and
3) All necessary major expenses (utilities, insurance and emergency fund, etc.)

A personal budget is important for three reasons:

1. A budget limits impulse purchases. It is worth pointing out that the number of worldwide personal bankruptcies has reached an all time high. 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 behavior is the personal budget. Expenses on food, utilities, and even recreational expense should be monitored. That way, you buy only what you need, not what you want. Having a budget for necessary expenses and sticking to it reduces the possibility that you would spend a lot of money on something you dont need.
2. It tracks where your money goes. 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 realize 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.
3. It tells you how much you have leftover to spend. Another great benefit is that a budget portrays an accurate idea of how much an individual can actually afford to pay various consumer items. Whether its 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 realize 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.

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