ADVANTAGES AND LIMITATION OF A BUDGET

. In this article , we will have a closer look at the advantages and disadvantages of budgeting .

. ADVANTAGES OF A BUDGETS : 

1 . The harsh reality of personal finance is that people spend a lot of their money subconsciously . If these people knew the big picture about how their frivolous expenses such a eating out and vacations were impacting their long term goals , they would probably cut down on some expenses . This is where a budget helps them . A budget provides the big picture to an investor and, in the process of doing so , compels them to do financial planning . 

2 . Another major problem in personal finance is that many people do not realize the impact that small monthly payments have on their savings and net worth . When a person does a written budget , they know exactly how an increase in monthly payment will impact them . This prevents people from undertaking unnecessary expenses . As a result , people who a written budget find themselves in fewer financial problems in the course of their lifetime .

. LIMITATION OF A BUDGETS :

1 .  People who makes budgets for the first time are not very successful in doing so. This is because budgets are based on assumptions . Hence , if the underlying budgets are extremely strict or based on unrealistic assumptions , then the user will not be able to follow them and use them . Over a period of time , people get tired of the disappointment that the budgeting process brings along . This is the reason that they simply give up the process in the long run . 

2 . Simply budgeting will not help a family . If they keep on adding wasteful expenditure to the budget , their savings rate will not increase . The process of budgeting brings alone a certain level of introspection . If that is not done , simply writing down numbers on a piece of paper does not proves to be of much use . 

CONCLUSION - The bottom line is that a budget is an important tool that can be used in the process of financial planning . However , its usefulness is subjective. some investors derived a greater value from the budgeting process than the others.