Budgeting is the most basic and the most effective tool for managing your money. Yet, most people avoid doing it because it is additional work, much like cutting your lawn or fixing the roof. Budgeting also connotes that you have to give up and stop yourself from enjoying stuff.
What budgeting actually does is clearly show you how you allocate your money and present you the choices on what stuff to enjoy – based on your financial limitations. It will save you the grief of overspending and being too much in debt. Budgeting does not stop you from enjoying stuff, it ensures that you enjoy stuff when you want it.
Although budgeting is indeed more work, it pays off with many life-enhancing benefits:
Benefits of Budgeting
- Gives you control over your money – A budget is a way of being intentional about the way you spend and save your money. It is said that with budgeting, you control your money and not your money controls you. Budgeting saves you the stress of suddenly having to adjust to lack of funds because you did not initially plan how to spend them. It also helps you decide if you want to sacrifice short term spending like buying coffee everyday in exchange for a long term benefit like a cruise vacation or a new HDTV.
- Keeps you focused on your money goals – You avoid spending unnecessarily on items and services that do not contribute to attaining your financial goals. If you are working with limited resources, budgeting makes it easier to make ends meet.
- Makes you aware what is going on with your money – With budgeting, you are clear on what money is coming in, how fast it goes out, and where it is going to. Budgeting saves you from wondering every end of the month where your money went. A budget enables you to know what you can afford, take advantage of buying and investing opportunities, and plan how to lower your debt. It also tells you what is important to you based on how you allocate your funds, how your money is working for you, and how far you are towards reaching your financial goals.
- Helps you organize your spending and savings – By dividing your money into categories of expenditures and savings, a budget makes you aware which category of expenditure takes which portion of your money. That way, it is easy for you to make adjustments. Budget also serves as a reference for organizing your bills, receipts, and financial statements. When all of your financial transactions are organized for tax time or creditor questions, you save time and effort.
- Makes you decide in advance how your money will work for you.
- Enables you to save for expected and unexpected costs– Budgeting allows you to plan to set aside money for emergency costs.
- Enables you to communicate with your significant others about money – If you share your money with your spouse, family, or anyone, a budget can communicate how you use money as a group. This promotes teamwork on working for common financial goals and prevents conflict on how money is used. Creating a budget in tandem with your spouse will avoid conflicts and resolve personal differences on how your money is spent. Budgeting teaches family members spending responsibility and accountability.
- Provides you with an early warning for potential problems – When you budget and take a “big picture” view, you will see potential money problems in advance, and be able to make adjustments before the problem appears.
- Helps you determine if you can take debt and how much – Taking debt is not necessarily a bad thing if the debt is necessary or you can afford it. Budgeting shows you how much a debt load you can realistically take without being stressed or if taking the debt load is worth it.
- Enables you to produce extra money – In budgeting, you get to identify and eliminate unnecessary spending like late fees, penalties and interests. These seemingly small saving can add up over time.
Who Should Budget
You should be budgeting if you are:
- working on limited money.
- trying to lighten your debt load and solve your debt problem.
- working towards a financial goal
- planning to retire early
- trying to make the best use of your money
Budgeting has one big drawback. For it to work, you have to consciously. It does not really save you from bad spending habits. It only gives you a goal and reference to help you stay focused. Click here for tips on sticking to your budget
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Budget management, also known as “paying the bills”, is a practical and beneficial skill that can be used for the rest of your life. Unfortunately while colleges offer classes ranging from astrophysics to medieval poetry, there are few classes available on personal financial management. The most effective way to learn good budgeting is through handling the costs of your life. While in college, students are given the time and place to learn budgeting skills so that when they graduate they can transition into independence. Some examples of college budget questions include:
- “Can I buy a new laptop and take a European vacation?”
- “Will there be enough money for gas in my car?”
- “How much money can I get by selling this textbook?”
- “How much did I spend on pizza last month?”
- “Does it make sense to buy a case of Ramen Noodles?”
- SPRING BREAK MONEY
The surprise is that these kinds of questions are actually recurring well after graduation. The difference is that over time the products and services used may change, but the value of good budgeting remains the same; high.
The trouble is that students miss out on this learning experience for one reason or another. Many students get so caught up in the college lifestyle, they forget why they are even there; to develop a future. Learning about budgeting at an early age enables a student to handle responsibilities and develop a mindset of accountability. Here are seven points about college budgeting that are very beneficial to college students.
1. Establish Goals
It could be for a car, a trip or a new gadget but your money is destined to go somewhere. Without any goals, your money will run wild and go all over the place. Take control of your money by having a clear reason to establish a budget. If money for Spring break is your goal, then establish it and stick to it. This is the first step to developing budgeting skills.
2. Know the Resources
There are many ways to get money, but most college students gain access through an off campus job, work-study, a large cash gift, or a student loan refund check. If your cash flow comes from work, you have to account for a certain number of hours in order to secure it. Cash gifts are great, but if you do not regularly receive them then you should conserve the cash for important items. A student loan refund check is a bit different. If after all grants, scholarships and student loans have paid to the account and there is extra funding left over, a check is given to the student for the difference. Many students apply for enough student loans to pay their bill and have some extra money for expenses. Just remember, it is a loan that must be repaid.
3. Know the Expenses
The cost of food, transportation, books, computers and other items are the most predictable college expenses. The problem is that other expenses begin to creep up. Going out to eat at odd hours, lots of new clothes, constant tech upgrades and an endless amount of consumer goods are all available. When developing the budget, first account for all of the necessities on a monthly basis that must be handled in order to complete your education. Any extra money left over can be used for luxury items and non-necessities. Your goal will be to prioritize the value of each product or service considering what value it really has. As a student you can honestly avoid buying most products and services as they are not useful for educational opportunities.
4. Using Credit Cards
Learn to master your credit early in life for greater benefits later. As highlighted in a prior article, employers today look at the credit report of a student as part of the employment background check. There is even greater incentive for college students to have strong credit when they enter the job market because of this. However, in order for anyone under 21 to qualify for a credit card, they must have a cosigner or they must be able to document how they support themselves. Students should use credit only for certain emergencies where there is no other option available. Credit card balances should be paid off as quickly as possible, building credit while the student is in school. Large, recurring credit card balances must be avoided at all times. The goal is to finish college with a better credit rating than when you started, not a worse one.
5. Factor loan repayment as part of budgeting
If you are taking out student loans to pay for college expenses and you have some income then start repaying the loans now. With interest accruing on student loans they can quickly grow. Reduce debts by allocating a payment towards loans every month. Not only will it lower your debt, but also improve credit. You should also consider refinancing student loans, this can help save thousands.
6. Allocate Savings
Saving money is an important habit best developed in early years. Establish a minimum amount of money that can be saved every month based on what income is available. It does not matter if the monthly amount is not substantial. What is important is knowing that with every dollar earned, a percentage of it is saved. You should not spend all of the money you have as soon as you get it.
7. Develop Positive Habits/Skills
Being aware of your resources and expenses, building credit early, saving money and knowing the difference between wants and needs are all critical to personal financial management. No matter where you are in college, you can develop the positive habit of accounting for these things. Think of a college budget as preparation for the future. By developing these habits you will be ready to handle the challenges of life after college.