I have time and again emphasized to my friends, family, and colleagues – Money matters should always be given priority at every stage of life. It is extremely important to understand cash flow on a monthly basis so that there is an appropriate ROI mechanism that can be implemented. Budgeting acts like a road map, helping you understand your finance better while encouraging you to plan smarter.
But why is it so important to plan your finances?
#1 – It creates awareness
If your salary is your sole source of income, then budgeting is the ultimate solution to all your finance related woes. Understanding your spending habits helps you become a wise spender, consciously leading you towards informed decision making.
#2 – It helps you differentiate
Sometimes, an impromptu purchase may leave a not so visible hole in our pockets and yet, we do not wish to control the urge to overspend. Budgeting is a classic medium that helps you differentiate valid expenditures from unnecessary expenses.
#3 – It inculcates financial wisdom
A recurring expense every month is justified. But an extravagant splurge every week can be controlled. Practice makes perfect, and wiser too. It takes a while to introspect and form the habit of questioning yourself – ‘Do I really need to make this purchase?’
#4 – It saves you from the debt trap
Very often, the lack of cash in hand and the ever-increasing demands of the household can persuade us to borrow money – Sometimes from friends, from relatives, and at times, even from money lenders. Eventually, borrowing becomes a need. Thus, draining you of your future resources and the ability to manage finances better.
#5 – Reduces stress and prepares you for emergencies
Investments and savings help ease the pressure in the long-run. All it takes is choosing the right portal for your finances. The knowledge that your loved ones are covered for any misfortunate events, helps you sleep peacefully at night.
There are different types of budgeting modules. One of the most commonly used is the ‘50/20/30 budget rule’. Popularized by Senator Elizabeth Warren, it simply states that once you have determined upon a financial goal, divide after-tax income, spending 50% on your needs, 30% on your wants, and 20% goes to savings.
This has proven a bit tricky for those that have a knack for buying things they barely use more than once. But it sure is a start. I personally know of individuals who have created a self-sufficient budgeting module that helps them track their expenses. Its all a step towards easy beginnings that will lead to a self-sustaining future.
All it takes is a little bit of patience and consistency in establishing good spending habits. Because short-term financial goals provide instant gratification. But long-term budgets provide peace of mind.