Friday, September 12, 2008

Benefits Of Budgeting

I firmly believe that a personal or household budget is one of the fundamental building blocks when it comes to the subject of personal finance. A budget allows you to see clearly where your money comes from and where it goes. This is the very first step you need to take if you want to get in control of your finances.

Having said that, I've been a somewhat sporadic user of a budget as a personal finance tool. What I tend to do is prepare a budget and satisfy myself that my income does indeed exceed my planned expenditure by a sufficient margin to meet my savings goals.

What invariably happens then is that once I'm comfortable that my spending habits are roughly in line with the budget, I tend to neglect it until another (normally financial) event triggers me to go back and re-visit it. And that's what happened recently.

My wife has recently quit her job so it means we're down to one income. While it means a more relaxed family life for us all, it also requires a little more attention to the financial details of our lives. So in keeping with tradition, this event has prompted me to go back and update our budget.

The good news is that we still have an adequate difference between income and expenses to allow us to meet our savings goals. But the lower level of income caused me to cast a slightly more critical eye down the list of expenses to see where we could potentially save a little extra money.

Starting with some of the larger annual outlays, I fairly quickly identified 2 or 3 items which deserved closer attention. Adding together our phone and internet bills made it one of our larger regular expenditures. A little research quickly identified a number of better deals available to us for these services. In the end we chose a VOIP option in combination with our internet service. The cost is now roughly half what it used to be.

I plan on tackling some of the other larger expenses in the near future. I'm sure we could get a better deal on some of our other services if we shop around a little.

What prompted this cost cutting exercise was the preparation of a budget. It forced me to have a look at all of our expenditure in one place rather than in dribs and drabs as they actually occur. And we're seeing the benefits already.