Budgeting: Nature and Purpose of Budgeting
Most people may not be as much open as others when it comes to budgeting. To those who haven’t feel the burden of paying their monthly obligation, the word budget maybe something they perceived as unnecessary. The truth is, budget can be the most helpful vehicle towards freeing you from debt. Besides, to those who are free debt-free, it can be a powerful tool in attaining more stable finance.
The Nature of Budgeting
A budget is not a straight jacket that restraints our every move. Though some people may perceive it as such, a budget should be taken in a positive view. For those who are new to budgeting, it might feel depriving you of your liberty to spend your own money. However, when you look at the positive side of budgeting, you will realize how it can help attain financial freedom.
The Purpose Of A Budget
The primary purpose of a budget is to direct you towards your life goals through concrete finance management. It may sound simple, yet several people vary in terms of living standards. Furthermore, your budget is focused on the goals that you set such as paying off your debt to avoid bankruptcy, or saving and investing for your retirement.
Steps to Consider in Budgeting
Whatever your purpose or goal, it is important that you conceptualize your plan and make sure that you are implementing such to attain your ultimate goal. Hence, the following steps will guide you on how to align your finances and achieve your goals.
Step 1: Setting Focus on Goals and Priorities
Before you create your budget and come up with the figures in mind, you have to set focus on what are your priorities and goals. Understanding your current financial condition and the amount that you’re earning each month can help you decide which priorities to consider and how to set up a realistic goal.
Step 2: Accept Your Limits
You have to accept that you can’t get everything as of the moment. As you strive to pay off your obligations, there are certain things that you might need to limit or sacrifice to attain your goal. You need to understand that for you to come out successful, you need to work hard for it to earn it.
Step 3: List Your Income and Expenses
You need to itemize your expenses and your income so that you can get a clear picture of your finance each month. First is to get the sum of your earnings each month; next is to add all your expenses such as your monthly bills, education and mortgage payments, and others; then, get the sum of all your debt payments each month. After you get the figures, you can add up your debt payments and your expenses and subtract the result from your total income. By doing so, you can see in detail where your income goes each month and the amount you’ll be left with.
Step4: Make Tough Decisions
If you’ve had some spare each month after doing the calculation above, then you might use the money by setting up a savings account or emergency funds. At some point, you can even add it up to pay off your debt if your priority or goal is to get out of debt faster. So, whatever you’re goal is, you should treat it as your priority. Hence, you have to sacrifices using the money for the things that you want, but you don’t necessarily need.
Step 5: Create A Budget
Now that you have a clear view of your monthly finances, it is time to come up with a plan for the months to come. Based on the steps that you have done above, you can craft a plan for next month by putting each category from the top to the least of your priorities. You then decide on the figure that you need to allocate on each and decide where you can cut back expenses. Besides, putting every dollar a name can ensure that you stick to your budget plan.
Step 6: Pay Attention
At first, you might be struggling in implementing your budget for a few months, but paying attention to your goals and the purpose will keep you going. You also need to be patient as it won’t be an instant fix. Just make sure you stay focus on your goals and pay attention to how you exercise your commitment.
Step 7: Keep Your Goal In Mind
Most of the time, when we are close to the finishing line, we tend to feel exhausted and on the verge of giving up. In cases wherein you feel such, just look ahead and keep in mind that your success lies in your momentum. The tough choices that you made can get you closer to your goal. So, always look ahead and never doubt where you’re going. Set your mentality straight that it’s not gonna rain forever; after such sacrifices, a greater reward awaits.
Start Now or Never
Budgets can be hard at the start, especially if it takes the entire household. However, they are an excellent means to take control of your life goals and finance. They are extremely helpful to make sure that you keep your finances align and avoid any circumstances that will draw you close to indebtedness.
CONSUMER PROPOSAL EXAMPLE
Example Unsecured Debts
|2||Credit card 1||$6,812|
Your Monthly Repayments Would Be
a Consumer proposal $748
(total contractual repayments)
a Consumer proposal $295
(total contractual repayments)
* Subject to creditor acceptance
* Payment subject to individual circumstances
* Credit rating may be affected
* Fees apply, subject to individual's circumstances.