The One Part of Budgeting That No One Talks About

Personal Note: Budgeting, including household budgeting, is one of the most beneficial practices in personal finance matters. The moment we start experiencing lack of proper control in financial related areas of life, it is very easy to lose our peace of mind, our ability to think constructively and expose ourselves to serious dangers of deteriorating health. As Bern endeavors to make clear in this article, making adequate provision for future earnings, when creating our personal or household budget, is a vital aspect of the all-important budgeting practice; and we cannot afford to do without it if we are truly sincere about experiencing long-term success in our personal finances.

The One Part of Budgeting That No One Talks About
By Bern Walters

The Importance of a Household Budget

No matter if you are a college student, a family of four, just graduated, or you have been in the workforce for any length of time you should have some level of understanding about the importance of money management. The first thing that is considered in the creation of a budget is the present earnings at the time, and secondly, any future earnings. However, in some scenarios this second aspect of the budget process is sometimes overlooked when most people sit down to create a personal or household budget. The reason behind the need to enter a forecast for future earnings is because of possible growth through pay raises and cost of living adjustments sometimes provided by employers.

Furthermore, this second aspect should enter into the future goal category. When building a financial management model, a budget, the present and possible future earnings are only part of the picture. Each financial plan should contain a goal or set of goals with which to set or build the framework and structure of the financial model. The standard entries such as expenses, overhead or liabilities, and earnings equate to cash flow. A budget, therefore, is a roadmap of, and for the direction and amount of cash or earnings, an entity receives and moves. The entity can be any one of the aforementioned to include the possibility of a business.

Large and Small Businesses Do It, So Why Not You

Determining your goals as a family, a postgraduate, or a student means that some thought as to where you see yourself financially in the future takes place. When looking at the big picture, so to speak, this means planning for change and setbacks. The change looked for is the potential of future gains through raises, investments in real estate, buying a home, having a family, retirement, and funding your children's education. This translates into preparing for the bumps along the way or the setbacks by creating savings accounts and retirement funds such as a 401k or a Roth IRA. Life insurance enters into the broader picture of preparing for medical emergencies and even sudden death.

By making a budget and entering a forecast of future earnings, it helps you keep track of both spending and savings and aids in monitoring the path towards the goals you have set. This also helps avoid running into the chance of having to declare bankruptcy. This last item becomes a concern when someone is living beyond his or her means by spending more that they earn. This can happen very quickly and easily where credit is concerned. Which is why budgeting is so important. Having a little debt is healthy where having a lot of debt is detrimental for two major reasons.

Having Too Much Debt

The first reason too much debt is harmful is it creates anxiety and stress to occupy the mind, which in turn can cause a persons health to deteriorate and cause poor judgment in financial matters making things worse. Secondly, the loss of a home and personal possessions can result through having to declare bankruptcy, in a worse case scenario. At present, getting out from under large amounts of debt has become less stressful because more and more people are beginning to realize that setting a budget helps them achieve their financial goals by having a tool to monitor their cash flow.

Yes, having a budget helps diminish debt through the allocation of funds put towards certain areas that need the most attention. This is particularly important where a budget did not exist beforehand, i.e. the debt was realized. This shows the importance of having one in the first place so things will not get out of hand causing in large amounts of debt. However, as a college graduate who is saddled with their student loans, this is the opportune time to sit down and create one. Specifically, after the student enters the workforce full time, seeing the income received and looking at a forecasted scenario that includes debt reduction, cost of living expenses, and investment funding, (retirement and life insurance).

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