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Simply put, Budgeting is about assessing your priorities and allocating your money accordingly. You may belong to a lower middle class family or you may have inherited wealth in abundance that would last a couple of generations down the line but budgeting will help you all the same.
Not only will you be able to keep a tab on your expenses - your financial outgo, but you will also be able to figure out areas where you are prone to unnecessarily spend more and help you divert resources to those avenues that can pay you rich dividends.
Lets face it; who would not like to spend lavishly and live life as it comes. Sounds good but it is equally good to face reality. You may be the type who saves a considerable amount at the end of the month or one who exhausts his salary within a few days.
Budgeting is equally important for both because it helps you assess your financial position. It lets you take a dekko at how you have been playing with your finances and what your future holds for you if you continue that way.
Example: Lets say your monthly take home is around Rs 10,000. Out of this you need to set aside funds for running your household, pay up rent or maintenance expenses, electricity bills, gas bills, incur educational expenses, credit card bills, telephone expenses, entertainment, shopping, not to forget your conveyance to name a few.
Out of the limited income that you have there are certain expenses that are unavoidable and recurring such as education, rent and other bills - electricity, telephone, gas etc. but there are certain other that you may put off for now or spend lavishly depending on the funds you have at your disposal and your priorities. For e.g going on a shopping spree or on a weekend holiday. You may put off these to a later date till such time you have comfortably catered to the other more important ones.
But I am happy about my present financial status. Why should I plan?
So you are the happy-go-lucky guy who is quite pleased with his finances. Your income outpaces your expenditure each month and your investments are drawing good returns only to the envy of others?
Given a thought? What about your future? Through budgeting you can not only assess your present financial situation but it will also help you in planning out a secure future for you.
You need to plan not only for the present but for the distant future as well. With more disposable income at present, you may be achieving your short-term goals but how would you be able to fulfill your long-term aspirations?
Be it your children's higher studies abroad, that once-in-a-lifetime marriage, buying a bigger house, planning your retirement and many more... the list could be endless.
But aren't they equally important?
So what is the first step? Draw up your Personal finance chart/planner.