Budgeting – What Is It and Why Does It Matter?
When it comes to personal finances, budgeting plays a crucial role. Budgeting helps you keep track of your money, and a lot of it is tied to your financial health. It also has an impact on your ability to save for a big purchase, like a car or a house.
Various budgeting models
Budgeting is an important process to evaluate an organization’s resources and priorities. However, the process can be a source of conflict and compromise. There are a number of approaches that organizations can take to improve budgeting.
Zero based budgeting is a strategy that allows organizations to spend only on services to be performed. It helps managers find ways to reduce costs and develop new revenue streams. This approach is suitable for all types of organizations.
Line-item budgeting is another approach. In this model, budgets are prepared by organizational units. The expenditures may be based on the type of service to be provided or the activities to be executed. This approach is easy to prepare and offers some advantages.
Performance based budgeting is a budgeting technique that is closely tied to strategic priorities. It is a powerful tool that can enable an organization to achieve higher operational efficiency and better customer satisfaction.
Site-based budgeting is a popular technique that allows local managers to be at the center of the budgeting process. Often, the budget is developed through a committee composed of staff and community members.
These models are commonly used by governmental entities. They help to ensure effective use of scarce resources. Governmental expenses often need to be approved by law.
Many school districts use site-based budgeting. In this approach, the budget is prepared by school management. While this strategy can provide substantial benefits, it can also create some issues.
Line-item budgeting is still a popular method. Regardless of the model, each department must justify every dollar they request. For example, if a library system requests a budget for a patron served, that amount needs to be justified.
Another popular reform strategy is performance budgeting. Unlike the traditional annual budget, this approach enables an organization to be more flexible. By allocating resources based on priorities, the organization can be more responsive to changes in the marketplace.
Finally, zero-based budgeting is an option for organizations in stable environments. However, this approach does not suit large organizations. Nevertheless, it is a valuable tool for evaluating and planning an organization’s future.
Fixed expenses are easier to list than variable expenses
When it comes to budgeting, fixed and variable expenses are two of the most important things to know. Variable expenses vary from month to month, whereas fixed expenses are predictable. Moreover, some fixed costs are also discretionary. If you are planning a family budget, make sure to consider your needs as well as your wants.
Fixed and variable costs are not always easy to keep track of. A good way to stay on top of them is to have a separate savings account for each category. You may also want to create a spreadsheet and use an app to help you track your spending.
A typical fixed expense includes real estate taxes, car payments, and insurance premiums. You can also include subscription services such as Netflix, or subscriptions to a newspaper or magazine. These expenses will likely remain the same for the foreseeable future, but they can be negotiated to save money.
Discretionary costs are the ‘wants’ in your budget. They include a wide range of items, from entertainment to clothing to coffee. However, they are not always as obvious as your monthly water bill or your electric bill.
The most obvious variable cost is groceries. This can vary from month to month depending on your spending habits. It is also a fairly complex decision to make. For example, you could decide to cut back on eating out and spend more at home. Or, you can try stretching your haircut to save $30.
In general, fixed costs are easier to manage than variable expenses. The easiest way to accomplish this is to set aside a fixed dollar amount for each category. Another option is to set up automatic bill payments. Having these automatic payments will save you from late fees and ensure you get your bills paid on time.
Variable costs are harder to control, but they can result in whirlwind profits. As such, it is important to make the right choices, such as using coupons and switching to generic name brands. By making smart and frugal decisions, you can easily put more money in your pocket each month.
Financial contentment is foundational elements of good financial behavior
There are several studies that have demonstrated the relationship between good financial behavior and financial contentment. Some of the factors that may influence this relationship are stress and satisfaction. Financial contentment is the degree to which people are able to meet their needs and goals and maintain a satisfying life. This can be done through a number of different behaviors including saving, spending, and planning. Other factors that have been shown to contribute to financial contentment are objective financial knowledge, short-term positive financial behaviors, and perceived financial capability.
In addition to the direct association between financial contentment and financial well-being, there are indirect associations as well. For example, if individuals are able to save money, then they have the ability to invest, thereby increasing their net worth. Furthermore, if they are able to keep track of their finances, they have the ability to monitor their budget, which can help them avoid spending too much money on items that are not necessary. Finally, if they are able to maintain a balanced budget, they are able to keep their debt at a reasonable level.
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