By formulating a budget, you often gain a better understanding of the movement of your money (inflows and outflows) and areas where surplus income may lie. This information can then be used to assess your existing financial situation and devise appropriate plans aimed at achieving your financial goals and objectives, such as paying down debt and saving and investing for the future.
However, there can be limitations to a budget, namely, it’s often a snapshot in time and is only as accurate as the information that has been inputted into it. As such, it’s important to regularly review your budget and make sure that the information that you use is an accurate reflection of the movement of your money (especially regarding your day-to-day spending habits) and areas where surplus income may lie.
In this animation, we explore the importance of tracking your spending.