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Why Is Budgeting Important To The Average Consumer?

Why Is Budgeting Important To The Average Consumer?

Implementing and staying with a budget is the single most important factor when determining financial security and overall wealth. Unless, as a consumer, you happen to be part of the 1% of society who is obscenely wealthy, you will have to make tough decisions about how to spend your hard earned money. The free market economy has done its part by providing competition and multiple choices for products and services. As consumers, we have to do our part by making wise financial decisions while working within a limited financial framework, also known as a budget.

Limited Resources

A common phrase when referring to most households is that of living "paycheck to paycheck." What this means is that a fixed amount of income comes in every month and a corresponding amount of expenses are paid out. How much money is paid for goods and services is directly dependent on decision-making. Budgets help maximize the efficient use of these limited financial resources by allocating funds based on priorities. The most effective type of budget will initially breakdown expenses into needs and wants and then prioritize each item from one to five, one being the most important.

Achieving Goals

As every worker and business knows, it's impossible to achieve goals without a plan of action. For consumers, that plan of action is a budget. It's completely possible that there are certain individuals who have zero goals for themselves or their families. For the rest of us however, we would like to save for a child's college fund or a trip to a foreign country or a new car or retirement. All of these goals can only be achieved by using a budget. Goals aren't necessary when creating a budget but they make it easier because they provide a tangible benefit which will be realized at some point in the future.

Financial Management

Budgeting isn't necessary for financial management but financial management is necessary for a successful budget. There are some individuals who have their biweekly paychecks automatically deposited and then withdraw money or write checks as necessary. For many, this may be the totality of their financial management activities. However, past this laissez faire superficial attitude is the more important consideration of properly dealing with finances. Minimal consideration must be provided for financial management as the consequences can be significant with regards to excessive debt, insolvency and finally personal bankruptcy.

Debt Reduction

Unfortunately, the only time most consumers even consider the possibility of creating a budget is when it's already too late. As you may have already discerned from the previous sections, and ounce of budgeting prevention is worth a pound of debt reduction cure. A very few proactive consumers will already be on budgets but for everyone else it will take excessive debt, sleepless nights and failed marriages before they consider using a budget. If you are already in dire straits, then a budget is the number one requirement for debt reduction and financial stability. It is virtually impossible to pay off excessive debt without a long-term game plan which can only happen with a budget.

Image by: Kevin K