For Baber Makayla

Crystal Alexander

Charles P. Bretan

February 22, 2015

Keeping personal budgets

Maintaining a personal budget is essential in having a good long term financial success. It is in budgeting that individuals realize some great aspects and weaknesses as well. It helps an individual discover themselves with regard to their spending habits, financial aspects that they overlook, as well as discovering the need for huge emergency funds. A true aspect about personal budgeting is that many people do not take time to create a personal budget for different reasons. Many of these people do not have an idea of the negative effects that lack of budgeting could have on them and the economy at large, Kapoor, Dlabay and Hughes, (1991). Some people have little knowledge about budgeting and how it could help them make more informed financial choices. They do not have the right skills for making a good budget, making it difficult to come up with one. Few people understand how a budget could help them save their finances and use them in the best possible ways. Developing and maintaining the right format for budgets affect personal budgeting. Technology allows people to do a personal budget, but only for those few that can use the application find it successful. The lack of skill is therefore a hindrance towards personal budgeting. The lack of budgeting is caused by several factors, which affect the individual and the entire economy with time.

According to Schulz and Cheng, (2002), the personal budget can be a good tool for managing personal finances. Keeping a budget and following it to the latter helps people save and keep off debts. It gives the individual financial control of their incomes. It is a plan of how to spend ones finances and control how much they spend within a particular period. However, there are several reasons as to why people do not budget. The main cause is that most people find budgets time consuming and restrictive. Most people do not like budgeting because one has to spend time creating one. Going back to it each time when one has to shop wastes their time as well. At the end of the month, it is good to set priorities on how to spend their money. For the first months, it is time wasting since the individual needs to keep referring to the allocated funds for each item. However, technology provides tools that assist in budgeting to reduce time wastage. Software can assist in downloading and categorizing transactions. Many people find it restrictive because they have to cut down on some of their individual priorities. People have the desire to have a single batch that contains everything and discourages their zeal for budgeting. This is still linked with the amount of time that it takes them to categorize each expense under a broad category. People do not want to budget because they do not want to commit themselves to a particular shopping habit. It becomes challenging when one needs to shop for something that does not appear in their budget, hence finding the budget time wasting and restrictive. However, the budget does not necessarily mean that an individual will change their lifestyles; rather, it means that the budgeter will prioritize and save on their finances. Therefore, they should not feel restricted to do so, since it is for their own good. Budgeting helps save on expenses and have some money left for emergency and any unexpected events.

The second main cause for not saving is that budgets can be confusing and that they are affected by the individual’s earnings. Since budgeting requires the individual to classify their expenses, it could be confusing to understand the type of expense that a particular one belongs to. This is made worse when an individual earns little income. Setting the categories makes it easier to budget, but not every individual possesses the knowledge to do this categorization. Budgeting becomes easier with time. Therefore, people should not give up on budgeting once they start, concludes Whitehead, (1988). Balancing a budget is also not an easy task for lower income earners or when the individual is highly indebted. Such an individual will find budgeting very challenging because they do not want to acknowledge how high their budgets are. There is the fear that the total of the expenses might me higher than the income at the end of the month. However, budgeting could help the individual reduce their debts in the future. Budgeting is a good tool towards financial success in the long term. However, most people do not consider having their personal budgets. The false beliefs that people hold with regard to budgeting could cost them a lot later. Financial stability helps individuals maintain healthy and successful life styles.

When individuals do not budget, they encourage many effects to themselves and to the economy at large. First, individuals will be faced to get loans from their banks to assist in the offsetting of debts. This is because if one does not have a personal budget, they shop and spend without a plan. At the end of the month, they will have run short of cash to spend on their daily needs. This forces them to go for loans to complete the remaining part of the month. This eventually leads to an accumulation of debts. Depending on their income, individuals will find it problematic to pay off the debts. For this reason, they get into trouble with their banks, which could lead to auctioning of their items in diverse cases. This explains one of the reasons why people should budget and maintain a certain amount for emergencies. Secondly, the individual who does not maintain a good budget will force the family to strain. For instance, the children will not attend the best schools for lack of enough school fees. The individuals will not be at peace with their families and they will develop fights and disagreements. Taking the example of a child falling sick, it becomes challenging to give the best medical care since the family does not have enough savings and allocated funds for such an emergency. Such a family will have more troubles in the future which could lead to divorce. When an individual has a budget, they control the funds that will be used on a certain expense, hence saving a lot. When people do not keep personal budgets, paying their taxes becomes difficult. For this reason, the economy is affected in that the government does not have enough funds for its operations. It becomes difficult to make policies from the government level. Secondly, governments are forced to borrow funds from other countries so as to cater for the public needs of the people as mentioned by Whitehead, (1988). In conclusion, the lack of budgeting is caused by several factors, which affect the individual and the entire economy with time.

References

Kapoor, J. R., Dlabay, L. R., & Hughes, R. J. (1991). Personal finance. Irwin.

Schulz, A. K. D., & Cheng, M. M. (2002). Persistence in capital budgeting reinvestment decisions–personal responsibility antecedent and information asymmetry moderator: A note. Accounting & Finance, 42(1), 73-86.

Whitehead, A. (1988). Im hungry mum: the politics of domestic budgeting.