September 21, 2020

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Why Is A Budget The Stronghold Of Financial Management?

In a world where the money is given the utmost importance, nobody can deny that financial management and planning is what makes it grow and lets you enjoy all its advantages.

People often think that possessing money is the only way that lets you retain it. However, that is wrong.

  • I have seen people who had millions in their bank accounts and lost everything because they did not make use of financial management.
  • And then some people had a few thousand pounds with them, but they knew the art of managing their money and consequently converted those thousands into hundreds of thousands.

To plan, organise, segregate and control your financial assets is the essence of financial management. In all four of these aspects, there is the presence of a budget needed. That is why a budget is the foundation on which all your dreams and bank balance’s safety is laid. Let us find out what it is?

DEFINING A BUDGET

The concept of a budget is pretty simple to understand and implement. People do it all the time; companies do it, and so does the government.

A budget is a plan that helps you in the specific goal’s achievement that has been already set. To do so, it aids in the accumulation of money because the goal is always financial. The thing of importance is that a budget is usually for a predefined period; it could be a month or a year. It is essential because a person or business’ financial situation is constantly changing, and a budget will have to accommodate those changes to serve its purpose.

A budget starts by asking a very crucial question which is “How the target will be met?”To answer this, it has to include these four aspects;

  • an income source, for a person it could be a salary, while a business would have sales or revenue;
  • the person or business’ resources or assets;
  • all forms of liabilities, being bills payable or a debt;
  • and finally the expenses for the period.

Once this is done, you get one step closer to achieving your goal.

UNDERSTANDING WITH AN EXAMPLE

Let us assume that you have set a goal, and that is to buy a car worth £30,000. You have a monthly salary of £12,000, so the budget would have to be adhered to for about six months.

A budget can seriously put things into perspective for you. It makes you ask and answer questions that you would never ask otherwise.

  • The first question is, how much can you realistically save every month after paying off your liabilities?
  • The second is that can you live without all the undue and extravagant expenses that you do every month to shrink your savings? The Netflix subscription that you rarely utilise, is it worth the payment?
  • The third is, can you raise your income level by any chance? Is working overtime an option for the extra cash?
  • The forth, are there any assets that can be sold to bring in a new one in the form of a car?

A sensible answer to all these can make it pretty easy for you to make a budget and get your car.

However, if all these don’t work for you and you only have a part-time job, even then a budget can help you get your target. In this case, the question would be, can you apply for a loan? Loans for bad credit with no guarantor on benefits can be an option.

And the budgeting would start after the acquisition of the asset and the debt. The budget would set the target of loan repayment as its prime motive, and the questions would be asked at this stage.

THE BENEFITS OF A BUDGET

A budget is not given the kind of importance that it deserves. There are so many benefits of this concept, and so few drawbacks that you would be shocked.

  • A budget helps you to evaluate your performance Its job is not only to set a target but also to see its fruition. For that, constant monitoring of finances is mandated.
  • A budget helps you to bring in more income and commit less wastage. Savings is the most important aspect of budgeting; this way, you do not waste your money, and your earnings automatically rise.
  • Through budgeting, you are always prepared for all and any form of emergency. You can even switch jobs without the worry of lack of income because you would have plenty of savings.
  • Lastly, a budget helps to motivate you to keep your life and finances on track. When you see that you are getting closer to your goal, you get an innate push to keep going to see it through.

WINDING UP

In the end, I want to say that financial planning through budgeting is the best way to stay away from debt like fast loans with no guarantor. Taking a loan may seem appealing, but its repayment often becomes a burden.

If a plan can help you get your desires without having to take on a burden, isn’t that the more appropriate choice to make? A loan will get you to your target more quickly, but it would also make you part with more money in the form of hefty interest payments. So decide, the ball is in your court right now.

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