Budgeting - You will make better decisions with a personal budget
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At its roots a budget is simply an estimate of what you will spend and also serves as a mechanism to track the actual results of your spending against these estimates. In other words, if you estimate that you will spend $300 on food per month, how much did you actually spend? From this type of analysis you gain an immense amount of knowledge about your spending habits. These spending habits give you the exact information you need in order to make decisions on how to spend your money. Let’s look at an example:
After going through a basic budgeting exercise, you realize that you spend $700 a month on food. With further analysis you are able to see that you eat out about 50% of your meals which accounts for about $500 of the $700 spent. In some cases, this may be perfectly fine - perhaps you have the money to spend or you simply enjoy eating out the majority of the time and are willing to spend your money in this manner. However, the difference is you now understand exactly how much money you spend just on eating out per month, $500 (or $6,000 per year), which enables you to make a decision. Again, this decision could be to continue your current habit or it could be to reduce the amount of times you eat out in order to shift money to another spending area (gifts, clothing, saving, etc.).
The bottom-line is that without a budgeting exercise, you have not enabled yourself to make a decision at all. By spending blindly you are in turn making a blind decision which in the long-term is often the wrong decision. Do yourself a favor and at least go through a basic budgeting exercise to understand how you spend your money. Click here to go to the next ‘Value of Budgeting’: You will save more money
