• Adam Rifai

The Basic Fundamentals & Importance of Budgeting

Whether it’s for yourself, or your business; monitoring your spending is extremely important in reaching your financial goals. Budgeting isn’t just about cutting costs and being cheap, it lets you track where your money is going and how much of it has gone. Don’t think of a good budget as strict, but rather, realistic and achievable. With proper budgeting practices you should notice a decrease in spending on unnecessary items, and more money to allocate to the things that you enjoy or prioritize.

Your Goal

Before you begin creating your budget you need to understand your financial goals. Do you simply want to reduce costs? Or save up for either a large purchase or to pay off outstanding debt? From a business perspective your goal might be to reach a certain return on investment (ROI), or to achieve a 10 per cent increase in profitability compared to the prior year. Whatever it may be, budgeting makes it significantly easier for two main reasons. Firstly, by determining your goal, you can create your budget in accordance to reaching that desired outcome. And secondly, by having a budget, you can follow your progress and adjust throughout to ensure you remain on track and don’t overspend in the wrong areas.

Creating the Budget Allocation

Once you understand what you are saving for, you can go ahead and start creating your budget. The first step in the creation phase is allocating your expenses. Now remember, in the beginning I said that budgeting isn’t about cutting costs or being cheap. What I mean by this, is that you should allocate your spending based on what is important to you and necessary to reaching your goal. With good budgeting you can afford anything you want, just not everything you want. For example, I am a big Toronto Raptors fan, so, if I am making a personal budget, I might allocate any spending I have after my basic life necessities towards playoff tickets. Although they can be expensive, this is something I would consider important to me. By doing this, I would then have less to spend on other luxurious items that aren’t required for basic living. But because I made a budget, this is a sacrifice I have already agreed upon making for the given time period, and when I see my credit card bill at the end of the month there won’t be any unexpected costs.