A budget reflects the spending habits of your household. By drafting a monthly budget, you will become more conscious of the things that you spend your money on. It will also highlight whether you are overspending on items every month.
A budget is important because it allows you to plan realistically. It allows you to cater to your current needs. It also shows you whether you have enough funds leftover on a monthly basis to cater for the future. Some of the benefits of budgeting:
- It creates a clearer financial picture. This can assist with your financial planning process
- It helps to break down the costs per person in a family. This helps to identify whether each person is staying within their budget allocation
- Identifies income and expenses and where you are spending your money.
- Indicates whether more control needs to be exercised on monthly spending
- Helps you to prioritise and not buy things that you don’t need
- Develops financial responsibility
Always involve all family members in the budgeting process. Each person should know their goals and responsibilities towards household finances. Try and do some record-keeping as well to be able to measure your expenses over the course of the month. Most importantly, always budget with realistic expectations. You would rather overbudget and have some surplus thereafter than under budgeting leading to a shortfall.
Your budget needs to be flexible as well to cater for emergencies as and when they arise. For this reason, it is very important that your budget has a savings item in it as well. It is often best to treat savings as you do other expenses that are fixed on a monthly basis. By treating it as an expense, you ensure that it gets saved every month. Rather not wait for the end of the month to see how much money you have leftover before saving.
Drawing up a budget is a simple exercise to do, this article can help you draft one. If you need help in doing one, contact a financial planner for their assistance. Once you have the budget in place, the discipline and will to stick to the budget is then the most important part. It does not help to have a budget if you are not willing to stick to it strictly.