The Importance of a Budget

Recent studies have shown that only one out of every three individuals prepare a detailed written or computerized budget on a monthly basis. Even fewer individuals prepare a detailed long term financial plan. ‘’Why go through the hassle of drawing up a household or personal budget in the first place?’’  -you may ask.

Financial planning is needed to plan our spending, and without this planning it is easier to overspend on the non essentials. When drawing up a budget you will make provision for the things you NEED to spend money on first. By doing this you will be able to plan and track your spending. This means that you can take CONTROL of your finances and you can adjust spending habits over time.

Budgeting will also reduce your reliance on debt like credit cards and personal loans. By streamlining your expenses you can increase debt repayments or you can start saving for rainy days.

How does a budget work?

A budget is a simple balancing of your income and expenses. You should always make sure your living expenses does not exceed your income. Many individuals do not realize that they are spending more than they earn and end up going deeper and deeper into debt. By creating and keeping to your budget you will avoid overspending and you will be able to keep your debt in check and avoid your debt spiraling out of control.

Once you have mastered a monthly budget you can start planning for the future by keeping a budget forecast. A yearly budget forecast can improve financial planning by helping you make provision for those pesky yearly expenses such as January school fees and registration or December holidays. Once you have a forecast in place you can adjust your saving expenditure in your current budget to make provision for once off yearly payments, emergency savings and setting yourself up for a cozy retirement.

If you find that you do not have enough money to pay for your expenses with your income you can contact a debt advisor at Credit Smart and we will do a free assessment to determine if you are deemed to possibly be over-indebted.