Basic Concepts of Finance Budgeting.

The word budgeting seems to be a very complex one for so many neophytes. But in its simplest term, it means planning your expenses before a particular amount of money you're expecting arrives. I guess we all at some point in our lives, have been guilty of spending recklessly or perhaps, spending without planning. Consequently, we either spend too much on very little or spend on things that are of less necessity, and before we could realize it, the whole money we were expecting and anxious about is exhausted.

Lack of financial budgeting and planning had no doubt made a lot of persons regret their expenditures, and some had also gone 🏦 bankrupt, especially those who do not have a permanent paid job. It's for this reason that we need to understand the basic concept of budgeting, and apply it in our daily, weekly, monthly and also yearly expenses or expenditures.

The concept of budgeting requires that before the money you're expecting comes, you must:

1. Prioritize your needs according to their level of importance.

2. Have a detailed and comprehensive plan of how you'll disburse funds to those needs.

3. Know the current market value of each item you want to acquire.

4. Always go back to check your priority list to see if there's anything you could adjust.

5. Stick to the list regardless of any other proposal from anyone.

Let's take a look at each of the above steps one after the other, in order to better understand the basic concept of finance budgeting.

1. Prioritize Your Needs: 

Prioritizing your needs according to their level of importance, basically means listing all that you need in order of priority. This aspect could be very trickery for a whole lot of persons. And this is where so many novices makes mistake. So many persons often misconstrues needs and wants. Eventhough these two terms may seem to literally suggests to mean the same, but they ideally have different meaning. Let's understand these two terms perfectly.

Wants are basically what you desire as a person. However, it's not everything you desire that's appropriate at a particular time. Thus, since that thing isn't right at that moment, then it's obviously not a necessity. Needs on the other hand, are basic and essential. They're things that without having them, other things may not function optimally. Therefore, needs are more profound than wants. Conclusively, in order to make an effective budgeting, you must have a priority list of needs and not wants. And it must be from the most important to the least important needs.

2. Detailed plan of how to disburse funds.

This means strategically allocating funds to each item on your priority list. The term strategically means being very meticulous and careful when apportioning funds to a particular item on the list. You need to be smart in doing this. Remember, a budget is a tentative list of things you'd want to get when a particular money eventually arrives it's isn't the money you've got at hand yet. So you don't need to allocate the exact amount for a particular item, because inflation may occur between when you're making the budget and when you actually get the money. You could rather work with an average cost of a product after you've known the market value of such product.

3. Know The Current Market Value of An Item:

Sometimes, you've got to do this step before doing number 2, except in cases where you're already aware of the current price of that item or product on your list. A lot of persons often makes the mistake of preparing their budget without knowing what the current market value of each item on their priority list is. In order to work with an effective and efficient budget, you need to go out there or research online to get acquainted with the present price of each item or product you'd want to purchase. This will no doubt enable you to properly allocate funds, without necessarily coming back to augment the costs, consequently making a mess of your budget.

4. Going Back To Study Your Priority List:

Now, you have your budget. What next? A budget is a financial working document that's meant to direct your expenditures. There's a gap or timeframe between when you prepared your budget and when the money is expected to come in. Preparing the list and dumping it somewhere until the money arrives is a bad practice. The best practice is to frequently revisit the budget document or list, to know if there's anything you could add or adjust. This is important because, sometimes you may had finished preparing your budget, but only for you to go back to it, and discover that there's something very important you had forgotten. This could also require you to reprioritize your list, and perhaps take out some other less important items in order to input the more important ones you had missed out.

5. Sticking To Your Budget Regardless of Any Other Proposal:

A lot of us are guilty of not sticking to our budgets because of some other proposal from probably friends, colleagues and also relatives. And more often than not, we do regret not following or sticking to our budgets. This is obviously because, we feel very happy and fulfilled when we're able to meet the target of our budget, but sad and depressed when we do not meet those targets, particularly when we were being convinced of spending money on something we had thought that we need, but later discovered that it's really not worth it. Preparing a budget and sticking to it, requires some level of discipline and determination. Without discipline and determination, proper execution of the budget will be impossible, and you'll in the end regret not following through with what you've already written down.

In conclusion, finance budgeting is a deliberate action step anyone who wants to be frugal in spending must undertake in order to achieve financial success. And following the above steps I've listed will no doubt help you to become successful in effective budgeting.