Personal Finance Assignment Help
When we consider the economic environment of the 21st century, it is self-evident that if personal budgeting is an effective means of managing one’s money, it is more important to do so now than ever before. Any of us who play a role in assisting others with money management, whether it be through financial advising, consulting, or teaching financial literacy, will be more valuable if we can offer practical recommendations on how and why to budget. We may share a general consensus that personal budgeting is crucial to successfully managing one’s money, but there is a remarkable lack of consensus on how best to go about budgeting one’s money.
Further, there is little empirical research on the benefits that people who budget their money actually gain from doing so. We might agree that we do our clientele a great service when we explain to them the specific benefits of budgeting. Yet, do we agree just what these benefits are? Do we agree what our clientele must do to realize these benefits? To put the questions in basic terms: Why should people budget their money? How should they budget their money? Perhaps the lack of consensus is merely due to different people in different stages of their lives having different needs. The retiree who is budgeting to provide for necessities on a fixed income does not have quite the same purpose for budgeting as the professional at the peak of his/her career.
The advisor who recommends that the retiree budget the fixed income would perceive different benefits, and perhaps suggest a different approach, than the advisor who recommends that the career professional budget his/her take-home pay. Yet for all of the differences in needs that people may have during different stages of their lives, there are two underlying purposes of personal budgeting that fulfil these needs. We can draw a parallel to business to understand these purposes. The two main purposes of budgeting for businesses are planning and control.
This applies to running a household as well as to running a business, whether the household is that of a college student, a two-income family, or a retired couple on a fixed income. If we consider the purposes of personal budgeting to be planning and control of one’s personal finances, then regardless of the stage of life that the person is in, we can relate to personal budgeting three distinct, although interrelated, steps that enable businesses to plan and control their expenditures.
The first step is to estimate in advance what our expenditures will be during a period of time. Second, we record our actual expenditures during the period. Third, we compare our actual expenses to what we estimated we would spend. In personal budgeting, as well as in budgeting in business, the first step accomplishes the purpose of planning. The third step accomplishes the purpose of control. The second step collects the necessary data to accomplish the third step. We cannot expect any budgeting process that does not include these three basic steps to fulfil the purposes of planning and control.