by D. Victor

Created on: January 01, 2009

The importance of budgeting in financial planning is unquestionable. In the bigger picture, finances perform a major role in determining significant aspects of the quality of your life. As such, any activity that can help you manage your finances may have a positive impact on your life. Budgeting is one such activity. The question is therefore concerned with how systematically allocating your finances- particularly on a continual basis- can improve your life. There are at five basic ways in which budgeting can do this.

1) Helping you to attain your financial goals

Some financial goals are life goals. Before you undertake budgeting activity you should have answered basic questions like "What does money mean to me?" or "What are my dreams". Budgeting then compels you to deploy your resources in a manner that will facilitate achievement of your goals and dreams as much as possible.

2) Enforcing financial awareness

Several people do not think carefully about finances, if at all. That bracket of persons tends to exist "in the now". When they receive their income, it seems to spend itself. Bills, debt and relative luxuries may consume entire incomes. Not much thought is given to the future or contingencies without financial awareness. Budgeting allows you to perceive your finances in a responsible and empowering manner. It does this by increasing financial cognition.

3) Reducing or eliminating financial worry

When you are in the process of budgeting, you feel a greater degree of control over your finances. This is primarily because you are taking a step towards controlling your financial reality and destiny. It is harder to worry and fret when you are busy looking for solutions during the budgeting process. This applies whether you're trying to reduce debt or accumulate a certain amount in a limited time period.

4) Enabling asset management

Asset creation, maintenance and growth are significant aspects of wealth accumulation and preservation. Those would, in turn, help you to achieve a comfortable standard of living. A key dimension of budgeting is asset accumulation through saving and investing. Budgeting therefore dictates how you should allocate income towards various assets and protection products in an effort to manage our assets properly.

5) Helping you to assess your priorities

While budgeting is primarily a financial planning tool, it can be seen as a life planning tool. We all use money to acquire assets and cover living expenses (among other things). Budgeting allows you to assess what our current priorities are and the nature and levels of your expenditure. You can then reassess our priorities and determine what they should be. How you use your financial resources should not be in disagreement with your life plans..

By itself, budgeting can make a dent in improving your life simply by increasing your financial awareness. However, budgeting can improve your life even more, if taken in the context of financial planning. While it is true that money isn't everything, we could surely do without having to worry about our finances, or worse; living pay check to pay check. By empowering us in managing our finances, the activity of budgeting can eventually improve our lives, even in non-financial terms.

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