Keeping a disciplined budget is a basic part of personal finance. Whether you use a spreadsheet or a cash envelope system to keep your spending in check, the important thing is to have a handle on money coming in and money going out. Budgeting offers several financial advantages to the typical consumer and only minor drawbacks.
Video of the Day
Financial Goal Achievement
In a thorough budgeting system, you set short-term, medium-term and long-term financial goals. Your goals direct you in allocating portions of income to paying off debt and putting money away for savings or retirement. Using accurate numbers to reflect cash inflows and required expenses allows for greater understanding of the time required to meet financial milestones. In theory, accurate accounting and disciplined focus should propel you toward each financial goal you set.
Planning for the Unexpected
Budgeting puts great emphasis on the known factors of income and typical expenses. However, a primary benefit of budgeting is that you can equip yourself to deal with unexpected expenses. The ideal budget allows you to set some money aside each month in a rainy-day savings fund. Building such a fund is essential after you meet monthly bill obligations. When you need a new set of tires or a home appliance breaks down, the rainy-day fund is your way to pay for these unplanned events without taking on debt.
Optimize Financial Efficiency
People spend money on two primary categories of items -- necessary and discretionary. Budgeting gives you a clear picture of where your money goes each month. This clarity is helpful in evaluating whether your current spending is your ideal way to optimize your limited financial resources. With a budget in hand, you can modify your targeted dollar allocations to refine your spending. You don't have to give up dining out or trips to the movie theater, but you may decide to moderate such spending for more critical needs.
Budgeting Drawbacks
Limited spontaneity is a burden for some people who budget. Because budgeting emphasizes disciplined spending, it precludes spontaneous, emotional purchases. For adventure seekers, this restriction is significant. The time required to develop and manage a budget is inhibiting as well. For people with more laissez-faire personalities, the time demand is a natural deterrent. Rigid adherence to a budget may also prevent you from taking advantage of limited time discounts, promotions and buying opportunities.
