What are the Benefits of Budgeting
Budgeting can help individuals gain control over their money. It allows them to prioritize spending, track how much they are spending, and realize when they need to make changes. A budget puts a solid plan into place that is easy to follow and gives individuals a chance to plan and prepare for the future. Committing to a budget help guide us towards achieving financial freedom. The benefits of budgeting are many, for instance, budgeting can:
- Reveals waste.
- Directs priorities.
- Creates new habits.
- Reduces stress.
- Educates.
What is the Importance of a Budget
The importance of budgeting is that it’s led you to identify the basic fundamentals of wants and needs when approaching purchasing decisions. As it is important to identify between needs and wants. For many, knowing where to draw the line between needs and wants can mean the difference between creating a successful budget and facing financial disadvantages. Most needs are synonymous with non-discretionary expenditures. They include, for instance, shelter, which demands payment of rent or a mortgage, and food, which results in grocery bills. There are plenty of other items that are basic and non-negotiable.
For instance, if you need a car to get to work, you could buy a used one instead of a new one. We are explaining here to those who cannot afford and would like to accumulate wealth. The price difference is huge, and some expensive carsare certain to impress your friends and offer a fine driving experience. However, the question is what can you afford?
Knowing the difference between wants and needs is a key to a successful budget. You can budget for some impulse purchases or product upgrades, but understand what you’re doing, show restraint and always make sure your budget balances.
How to Budget Money
- Calculate your monthly income, pick a budgeting method and monitor your progress.
- Try a budget that meets your needs, for instance 60 percent of your income for needs, including rent and debts, 20 for emergency savings and wants, and 20 for investment. Always the bigger amount of your income should be spent on spending a need.
Creating and maintaining a budget is an important step toward financial freedom. Sticking to a budget is a difficult task only for people who aren’t used to self-discipline in their finances.
Individuals who are seeking a way to financial freedom must stay motivated to implement their budget. Motivation can help alleviate some of the pressures of budgeting. By implementing a budget, you can save each month to invest and accumulate wealth. Finally, set goals, start slowly, and build up a plan that works for you and your lifestyle.
Definition of Needs
By the term needs, we mean those requirements which are extremely necessary for a human being to live, particularly, a healthy life. And these needs are personal, psychological, cultural, social, etc. that are considered to be important for an individual to survive.
The basic needs of human beings are food, clothing and shelter. However, with the passage of time, education and healthcare also became integral, as they improve the quality of life. They are your’ first priority as they are the things that keep you healthy and safe. Therefore, if needs are not satisfied in time, it may result in illness, inability to function properly or even death. When it comes to budgeting, you must focus on acquiring what is considered to be needs.
Definition of Wants
In finance, wants are defined as something that a person would like to possess, either immediately or at a later time. Wants are optional, for instance, an individual is going to survive, even if his wants not satisfied. Further, wants may vary from person to person and from time to time.
Historically, human wants are unlimited while the means to satisfy those wants are limited. Hence, all the wants of an individual cannot be met.
On these two concepts of economics, it can be determined that needs and wants are separate forces that compelaction for satisfaction. If needs are not met on time, the survival of a person is at stake whereas wants are something which a person is craving for, that does not challenge a person’s survival if not satisfied.
When planning a budget, you have the option of deleting or delaying the purchase of wants. So, when you plan a budget, you must distinguish needs from wants on the basis of your level of importance, to focus on needs. Hence, the distinction is between what is required and what is desired.
What are the Differences Between Needs and Wants
The following points are noteworthy so far as the difference between needs and wants are concerned:
- The term needs are defined as an individual’s basic requirement that must be fulfilled, in order to survive. Wants are described as the goods and services, which an individual likes to have, as a part of his caprices.
- An individual’s needs are limited while his wants are unlimited.
- Needs are something that you must have, in order to live. On the contrary, wants are something that you wish to have, so as to add comforts in your life.
- Needs represent the necessities while wants indicate desires.
- Needs are important for the human being to survive. As against this, wants are not as important as needs, because a person can live without wants.
- Needs are those items that are required for life and do not change with time. As opposed to, wants are those items, that are desired by an individual either right now or in future. Therefore, wants might change over time.
- As needs are essential for life, non-fulfillment may lead to illness or even death. In contrast wants are not essential for living and so non-fulfillment, does not have a great impact on a person’s life.
Why Are Individuals Failing to Achieve a Budget?
The following are a few factors that led an individual to fail to achieve their budget
Unrealistic goals
The most common reason budgets fail is that some individuals set unrealistic goals. While every reasonable budget aims to cater to your financial history, needs, and goals, it can be unrealistic to expect your budget to solve all your financial problems
Not customizing budget to needs
There are some brilliant ways people budget their finances and have been known to achieve varied financial goals. While it is good to embrace these best practices, it is far more crucial that you customize your budget specifically to your needs and lifestyle. Some individuals attempt to adopt a successful budget without evaluating its impact on their financial profile. The foundation for successful budgeting is that individuals must tailor their budget to match important needs.
Not maintaining an emergency fund Most individuals agree on the importance of an emergency fund when in need, but not all act towards creating an emergency account. Not having an emergency fund hampers a budget when faced with an unforeseen expense situation. This could lead you to dig into investments or savings or worse lead individuals into debt. To maintain financial discipline and also peace of mind, individuals must create an emergency fund and saving. This will come to the rescue when individuals overspend their expenses in dire situations.