Learning Resources

What is Budgeting: It’s Not Boring, It’s Not Difficult

17 Mar 2022

What is budgeting | Money Money Home | VI

To some people, budgeting may only sound like a thing to do for boring people. Yet oddly enough, when the time comes for the annual budget to be announced each year, the whole country would be abuzz.

Seated in front of the television, everyone is eager to know what sector or project gets more dough for the year, most likely so they can talk about it at the coffee shop or with their friends. That's on a national level of course, but the concept remains.

So, what is budgeting? And why is it so important?

What budgeting is

A budget is an estimation of revenue and expenses over a specified future period and is usually compiled and re-evaluated periodically. Budgets can be made for a person, a group of people, a business, a government, or just about anything else that makes and spends money.

To put it simply, the act of budgeting is drawing up an estimated plan for your income/revenue and allocating that money for different expenses, while also making sure that you do not overspend.

On a personal level, this is mostly done monthly. Ideally though, you should also have a budget planned for the year as some expenses only come in in certain months, e.g., the holiday season would require higher expenses for presents, et cetera.

See also: How to Buy Stocks as Gifts to Your Loved Ones

Now, this all sounds sensible and all, so it should be a no-brainer that any functioning adult would have a budget in place already, right? But… guess what, it isn't the case.

Even today, it is mostly people with low income who would have a budget, diligently allocating their income to the different avenues and making sure they have enough for the month.

While the rest, especially those with a stable and relatively high income, oddly enough, do not have a clue about where their money goes each month.

If there's money left at the end of the month, good, we can save that. But if there isn't, well... we'll attempt again next month. This is obviously not the best plan for your future, and we're sure these people know that, too.

But what is it about budgeting that makes it so difficult for most?

Why is budgeting difficult

What is Budgeting | VI

1. It's too troublesome

For all the things that we complain takes up too much of our time, half of them usually take up a solid 10 minutes or at most, an hour – cleaning up your home, cooking a quick meal for yourself, drawing up a little monthly budget. Yet, we seem to have no trouble spending hours slumped on the couch watching Netflix or scrolling on social media.

Recording what you've spent each day and keeping track of your expenses takes up around 2 to 3 minutes each time and allocating your monthly expenses takes up at most 30 minutes of your time IN A MONTH.

However, the act of recalling, jotting things down, and planning seem like a major chore to a lot of people.

2. It's taking away the enjoyment

If we haven't said it already, the world may be a little too high on the YOLO and FOMO these days, thanks to social media.

Rather than sensibly planning and allocating their money for the future, most would rather throw all thoughts and worries about the future out the window to spend their paycheck aimlessly while calling it "living in the now" or "living their best life."

See also: Embrace Money Management Skills, Not YOLO

For these people, meals at high-end restaurants, luxurious cars, expensive holidays at faraway destinations to pose for the 'Gram while living paycheck to paycheck feel better than sitting down to plan for their future.

3. They feel like they don't need it

"I earn $10k a month, that's a lot of money and should be enough to cover everything. What do I need to budget for?"

If the pandemic has taught us anything, it's that most of us take our job security for granted and it seems like it's just a given we'll have money coming in all the time.

But when businesses tanked and employees were cut loose back then, those who were living a stable life suddenly found themselves not being able to make ends meet.

How about those who suddenly fell ill and were unable to work, suddenly losing an income?

Why is budgeting important

More than just a sensible thing to do for your future self, budgeting can help you dodge all sorts of tricky financial situations.

1. It prevents you from bottoming out without knowing

For a lot of people, they know at the back of their head that they have "some money" in the bank and salary coming in each month, but not knowing the ins and outs exactly.

They'd just spend and spend, until one day, they'd realised they'd bottomed out. Only then they'd start panicking and attempting to recall where their money had gone.

Regular budgeting gives you a crystal-clear view of your finances and can help prevent you from bottoming out all your money without realising it. Instead, you will know where you stand financially all the time and you would have the time to do damage control if need be.

2. It prepares you for rainy days

Part of budgeting involves you putting aside a certain amount of money for emergency funds. Because let's face it, our lives never go the way we want and bad things can happen during the unlikeliest of times.

So by budgeting and setting aside a certain amount of money every month for emergencies, we are less likely to struggle should something come up.

Remember, you never think something will happen to you until it does.

3. It helps you retire

Not having enough money saved up means you are not likely able to retire. You might even need to continue working past your retirement age. Thankfully, budgeting will be able to help you prevent this problem (if you start early enough).

When you start budgeting, it is easier to have money saved up over the years and using this money, you will be able to grow your wealth until you're ready to retire.

In fact, if you choose the right way to grow your money, it might still be compounding throughout your retirement.

One of the easier ways to grow your wealth is stock investing, specifically value investing.

With minimal effort, zero need to stare at charts 24/7, and low risks, it's no wonder billionaires like Warren Buffett and Sir John Templeton could grow their wealth so much even beyond their retirement age.

Budgeting is not just about keeping tabs on your expenses and calculating how much you have to spend for the month.

It's also about planning, preparing for the future as well as making the necessary adjustments to make sure your finances are taken care of when you retire.

Where do you want to be when you're 55 – still struggling with a job or enjoying your life while knowing you have enough money in your pocket?

Learn how to have enough money in your pocket for the rainy days, for your retirement, and for enjoying life. Join our complimentary two-hour masterclass.

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