Financial Planning

Financial Planning

Question 1

Importance of budgeting and financial statements

Allocating resources for future expenditures and expected income is known as budgeting. Preparation of the budget is sometime tiresome and difficult to maintain, but it helps one to manage his limited resources. Similar to budgeting, personal financial statements are also very important. It helps a person to keep his eye on his financial position so that he can determine how financial healthy he is. Just like any business, personal financial statements also contain the importance of assets and liabilities. They enable individuals to manage their assets allocation. Assets may include precious metals, businesses, stocks, live stocks and real estate. Personal managing finance helps one to manage and protect his assets, build business and maximize the profit and value of his investment. It helps one to meet his future needs and ability to plan and forecast the future.

Question 2

Personal Budgeting Techniques

Paper and pen

I use a traditional method, keep a pen and paper with me all the time and note down the daily expenses and then enter it in its respective tally of category. I do this on a daily basis, and it enables me to keep a check on my allotted monthly spending and helps me to make sure that I do not go beyond the allotted amount.

Envelope system

This is the simple and powerful technique to manage my money. I keep few envelopes in my room and label each of them as a spending category like grocery shopping, clothing, entertainment and keep some money in each of them according to the needs.

Shoot For Small Victories

I set some small goals for my needs and wants purchase. For instance, I slowly save money for my new laptop or for the smart phone I want. Instead of crashing my budget at once I keep plans to save for future big expenses.

Disadvantages of Budget and Personal Financial Statements

Discipline

When you make personal budget, you should be disciplined enough and ready to adopt unfamiliar choices in your life. If you figure out that your entertainment budget is too high, you may adjust it according to your lifestyle and reduce that high cost.

Time requirement

Another disadvantage is the time requirement. One must spend some amount of time to create and manage his budget plans. It takes time to make entries and modifications on a regular basis.

Getting Others to Understand

A person having a personal budget is not the only one who affects. The people around like his spouse, kids and friends may have habits that fall outside of his budget, so he has to convince them to change those behaviors. Changing the opinions, habits and behaviors of other to go along with your set budget is a challenge.

Advantages of Budget and Personal Financial Statements

Helps To Set Goals

Personal budget helps one to save money and set his goals. Once a person correctly prepared his budget, it will show him how much of his income he needs to save and how much to spend to meet the ...