How To Budget Effectively
The Importance of Budgeting - What It Is and Why We Should Use It
Budgeting - surely you've heard this word somewhere - maybe when your parents plan food expenses for the month or when your school is hosting an event and planning the maximum amount of money spendable. But what is a budget, exactly? In general terms, a budget is a plan that gives us the ability to foresee different approaches and achieve a specific goal. Budgets can range from short term goals to long term goals - it can come in various forms and circumstances, whether it be for your daily spending budget or a small business. A budget can help you realize what resources are available to you - which ones you can use to your advantage and which ones are limited to you.
What You'll Get Out Of It
The skill of budgeting teaches you how to evaluate your performance through trial and error, resembling a science experiment. It allows you to explore your strengths and weaknesses and learn in the process when you ask yourself, "which set of skills and tactics may work better in my next budget plan?" More experience in budgeting increases your adaptability to unforeseen challenges because you expose yourself to tackling a problem in a short amount of time - this means you must know yourself well to know which sets of skills and tactics to use.
Well, what does the skill of budgeting require? One important feature a good budgeter has is discipline - the ability to control oneself and stick to the rules that were originally set. When you start budgeting, it is quite tempting to change the plan once you meet new problems - your discipline will help you avoid that common rookie mistake and help you keep your purpose clear in your head. As Jae K. Shim and Joel G. Shigel's novel, Budgeting Basics and Beyond states, "Budgeting enhances flexibility through the planning process because alternative courses of action are considered in advance rather than forcing less-informed decisions to be made on the spot." Budgeting will allow you to develop several other skills, including your organizational skills in terms of planning ahead of time and your ability to manage yourself in a more efficient and organized manner. Above all, it will allow you the opportunity to carefully analyze the situation before making important decisions. Remember, failures let us learn from our mistakes and help us become more effective in our execution. Do not be too discouraged when you find yourself often facing failure. The most important thing is not failing but reflecting on your failures and trying a new tactic to tackle the problem.
Creating a Budget: Knowing Where To Start
A well-developed budget requires some research beforehand, as budgets can play multiple roles in different purposes. Your goal in creating a healthy budget is to reach clarity - know what role your budget plays for your particular purpose, whether it be a professional organization or personal interests, allows you to gain experience in planning long-term objectives. Start researching tips that concern your aims, such as what type of software you may want to try or how regularly you should analyze your progress, comparing it to your original budget. To know what role your budget plays, list a clear purpose you are hoping to achieve - you want to create a goal that is not too difficult or too easy. You do not want to find yourself discouraged in realizing you planned an unrealistic budget, but you also want to make sure that you use your full potential. Note that going along the cheapest options available to you may not always be the best path, especially if there are options with more value and better quality surpassing the cheaper options. So explore your options, and focus on which option will get you the most value.
When you plan your budget, keep an open mind to limiting factors that may interfere with your plan - try to devote some of your focus to clearing those limiting factors. In foreseeing possibilities that limit your plan, you are more likely to handle the problem more effectively and allow your budget plan to run accordingly. Do take note that budgets can have errors that we notice along the way. Like The Financial Times Essential Guide to Budgeting and Forecasting by Nigel Wyatt states, "It is tempting to update the budget to reflect these errors or changes, but it is important to keep the budget fixed as a marker to measure our performance against. We may however update the forecast." When creating a budget, always keep your purpose in mind - it is easy to lose yourself while planning, which may double your work when you realize that the second half of your budget plan does not coordinate with your first half.
Managing Your Budget
Managing a budget takes consideration and honesty. Carefully observe your progress regularly - keep it regular, whether it be daily, weekly or monthly, as it will be easier to analyze and interpret specific trends and patterns. A large portion of the honesty comes from identifying problems as early as you can - keeping on the lookout for any indicators that may lead to problems. As The Financial Times Essential Guide to Budgeting and Forecasting states, "The sooner you identify a problem, the more options you have to manage it." Do not be hesitant when you think there might be a problem - you must not ignore it, and instead, come up with some solutions. Ask yourself questions:
Do you find your budget too challenging or too easy?
Can you make your budget more cost-effective without reducing your output results?
How realistic and transparent you are with your budget coordinates with the degree of your success.
Like the novel Budgeting Basics and Beyond by Jae K. Shim and Joel G. Siegel states, "The budget should be reviewed by a group so that there is a broad knowledge base." This way, you may have more confidence in your decision-making when multiple minds have different thoughts than you do.
Finally, have trust in yourself. A large portion of good planning is knowing your strengths and weaknesses - a healthy budget plan will also have a good foundation built from confidence and developed reasoning.
Using a Kakeibo Style Budget to Manage Your Expenses
The Kakeibo style budget derives from Japanese origins - the word "kakeibo" means "household account book," and it's a pretty simple process - perhaps you already do it. This style of budgeting involves you writing down your income and expenses in a notebook. The goal is to eventually make the total of your income greater than your expenses, which takes a combination of time, dedication and discipline. For more on this, try watching this video - it explains everything in an in-depth and efficient manner!
Works Cited
Bright Side. "A Simple Japanese Money Trick to Become 35% Richer - YouTube." Www.youtube.com, 26 June 2019, www.youtube.com/watch?v=Re4sv-vIGIY.
Shim, Jae K., et al. Budgeting Basics and Beyond. Wiley, 2012.
William Rea Lalli. Handbook of Budgeting. Wiley, 2012.
Wyatt, Nigel. The Financial Times Essentials Guide to Budgeting and Forecasting : How to Deliver Accurate Numbers. Financial Times, 2012.