A personal budget is arguably one of the most important tools anyone conscious about their finances must have. Not keeping a personal budget is the main reason most individuals are unable to manage their finances effectively (Newbronner et al. 2011). Simply put, a personal budget is an estimation of one’s expected income and expected expenditure over a certain period. A personal budget helps one assess his expenditure, hence helping one avoid living beyond his means. It provides individuals with a simple and easily understood way of managing their finances (Ramsey, 2012). A personal budget is a vital tool to help one prioritize spending and manage his money. There are  quite a number of varied reasons why people do not have family budgets.

The main cause for most people not having a personal budget is that it requires a lot of personal discipline to implement. Most people understand that sticking to a personal budget may mean having to be content with decisions one may not be comfortable with ordinarily (Routledge & Carr, 2013). For instance, a person used to spending most of his money on entertainment may find it hard sticking to a personal budget as it will reduce the amount available for that expense. This changes his lifestyle, and this may not be very desirable. Changing bad spending habits requires commitment and most people find the exercise quite unpleasant. This causes most individuals to avoid using personal budgets.

Another reason people do not make personal budgets is that it requires time to create and manage. Most people do not like spending time planning on how to earn and spend their income.  Creating a personal budget requires that one creates a spreadsheet, finds out his bills and other obligations (Newbronner, et al. 2011).

To ensure that one’s personal budget is up to date one has to keep modifying it depending on the flow of finances. This also caters for any unforeseen expenses. Living by a persona budget also requires that one consults the budget before making any major purchase. Most people find this too demanding and are a major reason people do not keep personal budgets.

Another major reason most people do not keep personal budgets is that personal budgets require consultation between the various parties who are affected by the budget. Any change of plans requires that all other parties who might be affected by the changes get notified (Newbronner, et al. 2011). Any major changes on the budget might even require their approval. Sometimes it is not always easy for one to make others view things as she sees them hence requires a lot of convincing. Most people find this inconveniencing hence avoid making personal budgets.

The tough task of implementing a personal budget is  generally one of the most mentioned reasons why individuals who try to have personal budgets find that coming up with a good plan is the easier part (Routledge & Carr, 2013). Turning the budget into a reality is a challenge. Bringing the budget into reality requires that makes daily buying decisions. At first this seems easy and pleasant but becomes more difficult as days go by.

During low moments most people operating on a budget find it convenient to go into self denial. They make purchases that are not accounted for in the budget hoping that they will get back to observing the budget once the low period is over (Ramsey, 2012).  These lapses have a huge effect on the overall budget. Eventually, the individual stops observing the budget at all.  Due to the difficulty of observing the budget, some  prefer not to keep it at all.

The fifth reason that causes people not to have personal budgets is that making a personal budget may lead one into missing opportunities. A person operating on a personal budget has no money to take advantage of a sale as they stick to only what is in the budget (Routledge & Carr, 2013). A person may not be able to take advantage of a business opportunity as there normally is no money left for such opportunities in the budget.  Hence fear that if one budget he might miss opportunities that arise without notice is one of the reasons why some people do not keep personal budgets.

Despite the many causes as to why some people prefer not to have personal budgets, it is an important tool as far as managing personal finances is concerned. Not having a personal budget has many effects on individual earnings and expenses. Most of these effects are negative. Not having a personal budget is one of the  reasons why people are unable to manage their finances.

One effect of not having a personal budget is that one is not able to identify wasteful expenditures. As a result, one ends up spending a lot of money on things he should not have bought in the first place (Universal credit, 2013). Without a personal budget one only realizes that he has been spending money wastefully when it is too late and has little or no more money left. One is not able to notice the changes fast and adapt to the new financial situation.

Another effect of not having a personal budget is that it becomes very difficult for one to lay down and achieve his financial goals. Laying down goals requires that one has an overall picture of his finances. Without a budget, it is very difficult for one to get a proper picture of how his finances are flowing. Without knowing exactly how much money one is making and how much one is spending, coming up with and achieving financial goals becomes very difficult.

Making financial goals require that one determine whether he usually has a surplus or a deficit at the end of the financial period. Without a personal budget it becomes very hard to get this information (Newbronner, et al. 2011). Worse still, one is not able to determine the average amount he spends periodically.  Without this information, it becomes very difficult to come up with financial goals that are achievable.  Achieving financial goals should be pegged on a certain timeline. Setting the timeline without a personal budget is difficult as one can only guess the income and is not sure whether there are any outstanding balances.

Another effect of not having a personal budget is that one is unable to prioritize his spending. With a budget, one can know how much he is earning and where to spend it (Universal credit, 2013). Without a budget, this is not possible. Without knowing how much there is to spend or where to spend it is very difficult for one to prioritize the spending. It is also  difficult for one to change spending habits if he has no idea how much money he spends or what  goods he spends it on.  People who do not budget stay in debt longer as they find it harder to prioritize on clearing off the debts. Budgeting helps one reduce on expenses and avoid overspending.

Not having a budget makes it harder for one to create wealth.  Creating wealth requires that one has a clear overall picture of his financial status (Routledge & Carr, 2013). Without a budget that clearly tells one his income, it’s not easy to have a clear understanding of one’s financial situation. This  makes it quite difficult to accumulatewealth. For instance, one can only create wealth after he has done away with debts. Without a personal budget, one may not even tell the budgets that he has outstanding.  This makes it  a very big challenge for people who do not keep a personal budget to create wealth compared to those who do.

People who do keep a personal budget rarely have a peace of mind. This is because their finances are a mystery to them. For instance, it is difficult for such a person to know whether he can afford a car or not (Ramsey, 2012). Such people end up buying things just because they desire them even without establishing whether they can truly afford them. Buying something without knowing what the purchase does to one’s finances leaves one without a peace of mind. This problem can be easily solved by having a personal budget. The budget ensures that every time one makes a purchase he is at peace with himself knowing that he could afford it. Budgeting involves keeping some money away that can be utilized during emergencies. This ensures that one has peace of mind knowing that his future is covered.

Not having a personal budget makes it difficult for one to estimate the amount of credit he can acquire without placing himself into further financial trouble. A budget alerts one when he is about to land into financial trouble in the near future (Newbronner, et al. 2011). This enables one find ways to avoid the trouble or mitigate the impact of the coming difficulty.  Without a budget, however, there is no way to tell when one is about to land into financial difficulties. This makes it difficult for a person who does not keep a personal budget to estimate his credit worthiness (Universal credit, 2013). For instance, it is difficult for an individual who does not keep a personal budget to notice when he has more debt than his salary can cover.  As such one ends spending a lot of money on credit without having a proper plan n how to repay back the credit. Bad credit may even break up a home as the partners squabble on who should shoulder the responsibility of repaying the credit.

Without a personal budget, it is not easy to plan for retirement. Retirement’ although is taken care of by the employer and the concerned agencies, requires a lot of attention from the individual.  This responsibility is even more if one is self employed. Saving for one’s retirement takes a lot of time and planning hence one need to start early.

Without a proper budget, it is very difficult for one to tell how long he has before he retires and much in terms of financial obligations he should have settled before he retires (Routledge & Carr, 2013). To enjoy a comfortable retirement, one should pay all debts before he retires. Clearing debts in good time requires budgeting. A budget alerts one when debts are piling too high hence one can come up with strategies to clear the debt before entering into retirement. Hence it is more difficult for a person who does not keep a personal budget to plan for his retirement.

Not having a personal budget makes it difficult to increase income and decrease expenses. An ideal financial situation is where one’s income exceeds the expenses (Universal credit, 2013). In situations where income exceeds expenditure, a budget helps one  decide what to do with the extra cash. In cases where the expenditure exceeds the income one can find an extra source of income to supplement the existing one. Not having a budget makes it difficult to notice when expenses exceed income hence making it difficult for one to balance the two.

In conclusion, not having a personal budget has a lot of negative effects on one’s ability to balance his finances. It greatly affects one’s ability to manage income and expenses (Universal credit, 2013). This has a negative effect on not only his current financial position but also his future plan as well as retirement. Although there are a few challenges associated with drawing and implementing a personal budget, the effects of not having one by far exceed the pain of dealing with those challenges.

References

Liz Newbronner, Ruth Chamberlain, Kate Bosanquet, Chris Bartlett, Bernd Sass,  & Caroline Glendinning (2011). Keeping personal budgets personal: learning from the experiences of older people, people with mental health problems and their careers. Retrieved from http://www.scie.org.uk/publications/reports/report40/files/report40.pdf

Martin Routledge and Sarah Carr (2013). Improving personal budgets for older people. Retrieved from http://www.thinklocalactpersonal.org.uk/_library/PersonalBudgets/TLAPImprovingPersonal_BudgetsforOlder_PeoplePhaseOne_D4.pdf

Universal Credit (2013). Guidance on personal budgeting support. Retrieved from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/181400/personal-budgeting-support-guidance.pdf

Dave Ramsey (2012). A guide to budgeting. Retrieved from http://www.daveramsey.com/media/broadcast/mytmmo/pdf/guide-to-budgeting.pdf

CLICK BUTTON TO ORDER NOW