One of the key aspects of personal finance is budgeting. Budgeting makes it so much easier to plan and take control of your financial situation. Budgeting requires a clear understanding of our income and expenditure. Budgeting is much more than just tracking expenses; it is only one aspect of a budget. I believe there are four pillars of budgeting. These four pillars highlight the important role budgeting plays in our lives.
Here are the four pillars of budgeting:
Pillar 1: Control
Budgeting helps to take control of our finances. Without budgeting, there is little chance of taking control of your financial decisions. It is like an out of control race car, swerving all over the road. Budgeting can help bring order to chaos.
Pillar 2: Allocation of Income
Budgeting can direct your income to help you achieve your financial goals. Your income is a finite resource and it needs to be allocated efficiently to extract the most benefit. The whole purpose of the budget is to identify areas that need your income the most and directing it there from areas that are not vital.
Pillar 3: Adaptability
A budget is as good as the information fed into it. The quality of information is essential to effective budgeting. If you are using outdated information to build your budget, you are setting yourself up to fail. Outdated information is like a shaky foundation, anything you build on it is destined to fail. Your budget should be able to adapt to the changing circumstances in your life. Any changes in your daily life that can potentially impact your finances must be included in your budget.
Pillar 4: Goals
Your budget should be working towards a goal. It can be as simple as spending less than you make. Goals can evolve as you budget through the months and years. As soon as you achieve a budgeting goal set a new one. Having a financial goal can help set a direction for your budget. Setting financial goals can help you motivated to budget and stick to it.