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Financial planning: How budgeting can improve your life and financial well-being

Updated on August 3, 2012
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Budgeting is a crucial activity in financial planning.

Your financial health helps to determine your level of comfort and quality of life – although it is by no means the only determinant or the most significant one.

It follows that budgeting can help improve the quality of your life by facilitating a higher degree of mastery over it.

Budgeting can have a positive impact on your life in at least five fundamental ways.

Reaching your financial goals

Often, many of the goals we have in life are dictated by finances.

Before undertaking any budgeting activity, you should already understand what your dreams are and the role of money in achieving those dreams.

Budgeting forces you to allocate and deploy your financial resources in a manner that should leave you better-equipped to attain your life goals.

Enforcing financial awareness

Perhaps too many persons adopt a cavalier approach to their finances. Such persons tend to reside “in the now.”

In those cases, income slips away nearly as fast as it comes; bills, relative luxuries and debt payments consume their entire income.

This is the opposite of the financial empowerment that budgeting enables. It allows the individual to consider the future and contingencies.

By improving financial cognition, it helps the individual view money in a responsible and empowering manner.

Reducing or eliminating financial stress and worries

Budgeting facilitates a sense of financial prudence and control. When you are taking a step towards your goals, it is harder to engage in negative, counter-productive activities such as worrying.

In addition, proper planning helps to alleviate financial woe – a primary cause of stress.

Enabling asset management

Asset creation, asset maintenance and asset growth are three significant pillars of wealth accumulation and preservation.

An important dimension of budgeting is asset accumulation through a combination of saving and investing.

Budgeting determines how you should allocate income and accumulated wealth towards various assets and protection products in an effort to manage our assets optimally. It also includes plans concerning how to utilize income from investments.

Priority assessment

While budgeting is primarily a tool of financial planning, it is also a life planning tool. The process of budgeting allows you to assess what your current priorities are against the nature and levels of your spending.

You can then reconsider your priorities and determine what the order of priority should be. After all, your use of financial resources should be in concord with your life plans.

Even on its own, budgeting can help to improve your life simply by improving your financial awareness. However, budgeting can also fast-track your goal-attainment and help you live a less chaotic life.

While money isn't everything, you could surely do without having to worry about your finances, or worse – living on a month-to-month basis. By empowering us in the realm of personal finance, a well-planned, realistic budgeting can eventually improve your life, even in non-financial terms.

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  • Hawaiian Scribe profile image

    Stephanie Launiu 

    5 years ago from Hawai'i

    Thanks so much for your hub! As summer winds down, it's a great reminder to rethink my budget and prepare for end-of-year holiday expenses. Also, to look at my goals and seriously link my goals to how much income I'll need to achieve them. By the way, I'm a big fan of Dave Ramsey and his down-to-earth philosophy. I noticed the book that you have listed on Amazon. Thanks again for your hub. Voted up, useful.

  • greeneryday profile image

    greeneryday 

    5 years ago from Some tropical country

    I got start to plan for budgeting now. By budgeting we can estimate how we are going to spend our earning in both short and long term future for better quality of life. Thank you for reminding, voted up for useful.

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