Why Do You Need To Budget | FinCalC

"Budgeting means planning how to spend your hard earned money and on what."

It's very important to understand what is a budget before starting to budget. Almost 70% of Americans don't have a budget for their expenditures and 80% of them don't know what is a budget and what's is it's importance.

Before diving into why you need a budget, let's see what exactly is a budget. 

"A budget is a plan which helps us to allocate definite amount of money for a purpose. So basically it's an allocation of money to fulfill our desires or needs."

Some Examples of having a budget may be - buying a new smartphone, planning for monthly expenses, planning for a vacation or a foreign trip. All these need some allocation of money to be done. That's called Budgeting.

Why Budgeting is Important

What do you do to be more productive throughout the day? You plan your day. You write down the tasks you are going to complete and analyze your day before going to sleep. 

You have a checklist of things to be accomplished within the day and you address the checklist at the end of the day. Same goes with your Personal Finance.

You need to plan your personal finances to be more effective in managing your money. You cannot manage your money effectively without having a plan, just like you cannot be productive without planning your day.

You need to bugdet whether it is your monthly expenses, a small vacation, unexpected expenses or a foreign trip. You need to plan for all these things in order to manage your money effectively.

"Failing to Plan is Planning to Fail."

How Can You Budget

There are many apps available that you can install on your mobile phone to track your daily expenses and allocate budget for different events. You can even use the traditional way of budgeting using an Excel Sheet. Just kidding. It's 2018 and nobody is using it anymore. At least not me. Better go for some available apps on app stores.
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3 Principles To Follow

1. Give Every Dollar A Job

Don't let your money sit in your Savings Bank Account. The rate of Inflation is greater than the interest rate provided by Bank Accounts. Read this article to know more about how Inflation works.

By giving every dollar a job, I mean, invest in every possible way you can. Let's say you have $500 in your Account to be spent in a month. You spend $400 to buy some gifts for your friend's birthday and your wife. Remaining $100 can be used to invest in stocks or mutual funds that will earn you interest money. Don't just let it sit in Bank Account.

"Best thing Money can Buy is More Money."

Invest extra cash in your Bank Account in different Assets that will make you more money. Make use of every Dollar that you have.

2. Save For The Rainy Day

Next is Saving for the rainy day. We cannot avoid unexpected circumstances. There can be an emergency which might force you to sell your funds that you had bought to fulfill your long term goals. Don't do that. Plan for such circumstances.

Always keep 6 months of your expenses in an emergency fund. This fund should be purely for emergency purpose. Now an emergency should be honestly an emergency. Buying a new smartphone or any other gadget isn't an emergency. Know the difference between what is an emergency and what is not. This emergency fund will be used for emergency purpose only. 

After setting up an emergency fund, have another account that will help you to save you from huge unexpected expenses. It could be for a relative visiting you for a month (that's unacceptable), unplanned vacation, etc. This fund can be used in such scenarios. This is called saving for the rainy day. This will ensure that you are not withdrawing money from your salary account and living paycheck to paycheck.

3. Live On Previous Month Income

This is the most important principle of all. Live on your previous month income.

This would be slightly difficult for people having variable income every month. The aim is to live and spend money that you earned last month. This way you will let your money you earned this month to accumulate. For people having variable income, they will have to plan their expenses accordingly every month based on the income they earned in last month. 

Again, the extra money goes to either your emergency fund or saving for the rainy day. Just make sure that you use every dollar that you have and give it some work to do for you. 

So what are you waiting for? Start Budgeting and plan your Finances.

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