The foundation to effective personal financial management is budgeting

QUESTION

The foundation to effective personal financial management is budgeting. Budgeting is the primary way that individuals take control of their personal finances. A budget is a written plan for how an individual or family will spend their money. A budget allows individuals to make financial decisions ahead of time, which not only makes it easier to cover all their expenses throughout the year, but also to save for life events.

When it comes to budgeting, we have inflows and we have outflows. If our inflows are higher than our outflows, we have a surplus. If our outflows are higher than our inflows, we have a deficit. Most people have more control over spending than they have over their income. So it stands to reason that if we want to have control over our personal finances, we need to track our spending.

The first step in budgeting is to identify and record our expenditures. The second step is to develop and record our budget. Our budget should focus on saving, whether it is saving for emergencies, saving for retirement, or saving for other life events.

This week our project focuses on the two steps of personal budgeting. First you will identify and record your monthly income and expenditures. Then you will use your monthly estimates of your income and expenses to create an annual budget, with a goal to save 10 percent of your income.

ANSWER:

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