Budgeting series 2

Budgeting series 2

……..Continued from series 1

‘Living without a budget is similar to traveling across the country without a road map. While both can be accomplished, the result is usually expensive and wasteful.”

​​​​​​​​​Jeremy Vohwinkle

The benefits of creating a budget cannot be overemphasized. Zainab clearly benefited from budgeting as she was able to pay off her debt and make an investment in real estate. Like Zainab, many wealthy people and families have increased their wealth through the use of a strict budget. There are many reasons why creating a personal or family budget is important. A few of these reasons are discussed in this article.

1. Debt Repayment: Like in the case of Zainab, with the help of a budget, you can make your debt repayments on time and eventually pay them off.
2. Increase in savings: With the help of a budget, savings becomes a priority and money is set aside towards short and long term goals such as retirement plans etc. As less money is spent, excess income becomes available for savings.
3. Minimises conflicts: In marriages money can sometimes cause conflicts as there are differences in priorities. For instance, a husband may prefer to spend money on household gadgets such as an expensive music system whilst the wife may prefer to spend money on expensive fragrance oils or furniture for the home. Family discussions over the budget can reveal these differences and compromises can be made to reduce disagreements.
4. Reveals Excesses: Comparing actual expenditures against a detailed budget reveals when money is spent on non-budgeted items. Once these excesses are identified, corrective actions can be taken such as reduction in spending in certain areas.
5. Creates a family bond:  In these times where there are a lot of things competing for family time, the budgeting process can form part of the family bonding time. It allows the family to come together at least once a month to provide input in the budget.  A good way to incentivize kids is to reward them for staying within the budget.
6. Changes perception about money: Budgeting changes a family’s mindset towards money. Money would no longer be spent impetuously but would be valued as a tool to reach goals. This is highly beneficial for children.
7. Reduces anxiety: The budgeting process provides an accurate picture of the financial health of an individual or family. Adequate measures can be taken to improve the financial situation of the individual/family. Also,individuals and families are adequately prepared for bills when they become due.
8. Accelerate goal setting: Families/individuals tha tconsistently live within budget have a higher likelihood of increasing savings and as such, they can begin to set and plan towards major goals such as retirement, education

To be continued.......