Introduction

Identifying the best way to budget personal finances is a critical economic activity. This paper examines the significance of budgeting and the best way to manage expenses.Therefore, the people enables individuals to determine that regardless of their sources of income and size of expenditure they still can manage their finances.

The Significance of Budgeting Personal Finance

To manage money successfully, each person must budget. Budgeting involves creating a plan on how to track and spend personal finances (Altfest, 2016). Planning for your investments is a simple exercise that requires individuals to cover their target expenses using percentages of their income. The process applies to all individuals regardless of their hourly, daily or monthly earnings. Budgeting enables individuals to determine in advance the finances available for all their activities; hence, they can prioritize needs, minimize over or underspending and save for the future (Altfest, 2016). Moreover, besides highlighting inappropriate spending habits, managing once finances enable individuals to avoid debts and have sufficient money until the next pay (Berman et al., 2016). Sticking to the set budget can contribute towards longevity by reducing worry and enabling people to have sufficient funds during retirement. However, some people are unable to create an expenditure plan because of the lack of a reliable source of income, inflation, and impulse buying (Berman et al., 2016), among other factors. Budgeting, therefore, is a critical process that contributes to the financial well-being of individuals.

The Best Way to Budget Personal Finance

Each person must identify the best ways to budget.To begin the process, it is essential to identify all income sources; full-time/part-time job, allowances, and business, among others (Berman et al., 2016). Equally, individuals must determine their net income and thus avoid overestimating the things they can prevent. People must also track their spending, mainly by using Maslow’s hierarchy of needs model. Based on the model, a budget can be structured by prioritizing personal needs into three significant categories: primary, psychological and self-fulfillment needs (Berman et al., 2016). Therefore, to properly use finances people must prioritize the most basic needs such as food, clothes, and shelter. Besides, individuals must set short and long-term goals. In turn, it will be simpler to minimize unnecessary expenditure such as money spent on credit cards to realize the set goals. Making a budget template or plan is the most critical part of the process (Altfest, 2016). As a result, individuals can use the fixed expenses and variables that they compiled to determine the expected expenditure in the coming days or months. For instance, fixed costs such as money spent on grocery can be used to predict the exact amount that will be used on food. When creating a plan, past spending habits can also be used to determine variable expenses (Berman et al., 2016). To simplify the template, expenditure can be divided into needs and wants. Needs can include things such as gasoline for people driving to work every day while wants include items like weekly and monthly music subscriptions (Altfest, 2016). Moreover, people can use the plan to adjust their spending habits. For instance, want-to-have outlays including attending a movie can be the first areas to be modified. To remain on track, the monthly must be reviewed on a regular basis or be compared with that of people with similar budgets. Nonetheless, identifying the best practices must not be equated with replicating other people’s methods into your financial plan.

Conclusion

People must continuously manage their finances through budgeting. To accomplish this goal, one must determine the significance of budgeting and factors that hamper the act. The process enables individuals to identify the most critical needs and align expenditure with their net income. However, factors such as inflation and lack of a consistent source of income hinder some people from budgeting. Regardless, people can budget by identifying their revenue streams and estimating net income, prioritizing needs, creating a plan, adjusting spending habits and reviewing their monthly expenditure. Therefore, determining the best methods to manage personal finances is as critical as the best methods to manage their personal finances.

References

Altfest, L. (2016). Personal financial planning. New York: McGraw-Hill Higher Education.

Berman, J. Z., Tran, A. T., Lynch Jr, J. G., &Zauberman, G. (2016). Expense neglect in forecasting personal finances. Journal of Marketing Research, 53(4), 535-550.

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