Impact of Budgeting on Financial Planning

Making a budget impacts financial planning a great deal. Actually a budget is one of the keys to financial planning. Without a guideline for your expenses there isn’t anyway to see your plan in action. There are numerous ways the plans you have financially can be touched by your budget.

Budgets are tools that allow you to see how your income compares to your expenses. It keeps you living within your means which means that you aren’t over extending yourself. The ideal budget includes savings, and has all of your expenses below your income. When expenses are kept reasonable the financial plan that you have is easier to achieve.

Having an adequate picture of your financial situation in front of you will aid you in creating a financial plan. Whether it’s to increase savings or buy a home you have to have a plan to achieve it. The amount of money left in the budget after everything comes out will show you how much you have to work with for meeting the goals that you have set out for yourself financially.

For instance if the budget includes $100 or $200 a month designated for savings you will have an idea of how much money you should have saved in six months or a year. When you are including an emergency fund with at least six months of your income in your plans the budget will allow you to see areas where you can reduce expenses in order to come up with these funds. There are those that will need less than others in order to get by for six months with these funds.

A financial plan that requires saving six months of expenses at roughly $900 a month would mean that you need $5400 in your savings account. $5400 to live for six months would have to cover rent/mortgage, utilities, insurance, food, etc. Now if you only bring home $900 a month and it takes you that much to live you have a problem. This is where your budget becomes extremely important.

You have to examine your budget and find areas to reduce it. The financial plan has to be separated out into steps so that you can begin reducing your expenses enough that you can put aside those six month ($5400) worth of expenses. The expenses that you have can be reduced enough that you only have half of them if you make a financial plan and realistic budget that you can stick to. The budget is an important tool when it comes to planning financially, in fact the budget can determine whether or not your plan is successful.