The term ‘budgeting’ is found in the everyday dictionary of a person who may be directly or indirectly involved in any kind of finances. In simple terms, it is a process which allots a certain amount of money for certain tasks. It is extremely important to set a budget in this day and age for effective management of finances. On the other hand, it is also imperative to be aware of the pros and cons of the budgeting process.
Pros and cons of budgeting
- Budgeting takes care of money. When making a budget, a person plans how the money is going to be spent. A certain amount is allocated to every part of the budget with careful consideration and thought. This encourages saving and better use of money. It also helps eliminate the habit of wasteful spending and motivates one to work towards their financial goals.
- Budgeting helps get a person on the right track. If someone is suffering from debt or some form of financial crisis, a budget is something they need to bring them on the correct path. It can be considered a proper financial tool to help an individual recover from the situation at hand and keep them encouraged. Budgeting is a great way to help a person plan the future and the expenses that will be incurred in an effective manner.
- Organization skills are enhanced with budgeting. A budget keeps a record of every single transaction performed within the month. It manages the expenditures and highlights those that are not required. This helps people eliminate them to further increase their savings or improve their spending patterns.
- Following a budget is similar to following a diet. We all know how diets begin and end; people restrict themselves to such a great extent and after a certain amount of time, they give up on the diet. Healthy eating can only be adopted if the person’s lifestyle is a healthy one. Restrictions only help within the short term. Budgeting can be described in a similar way. If a person’s financial lifestyle is stable and healthy, only wasteful expenditures can be cut back easily. Changing financial habits may take time, and a budget may not be effective for this to happen as it only imposes restrictions.
- Budgets are only effective if they are implemented in the right manner. Many times, people are successful in making efficient budget plans but do not have a plan regarding how to follow it. Furthermore, a budget requires one to calculate the amount of money that needs to be spent and how much is actually being spent. If these values are not taken care of simultaneously, the person is not following their budget.
- Budgeting is a time-consuming task. It requires a lot of patience, planning, and calculation. The plan needs updating every month as expenses are likely to change from time to time. It also requires thinking ahead and deciding how much needs to be spent in the future. In short, if a person is not committed to their budget, they will not be able to cope with their expenses.