Introduction
To achieve financial stability and minimize risks linked with unexpected expenses, skills in developing a personal budget are important. Basic budgeting-related competencies can promote healthier spending patterns and increase personal saving rates regardless of a person’s initial financial knowledge. This paper summarizes takeaways from the budget development exercise, including the discussion of budget deficits, savings, strategies in accumulating savings, budget variances, and the significance of cost categorization.
Income/Expenses and Savings
Having completed the exercise, I discovered a budget surplus and the ability to save enough money every month. As per the calculations, my monthly income exceeds the total expenses by more than a quarter, signifying the absence of budget deficits. After paying for the necessary products and services, including both entertainment-related and essential expenses, I save around 28,5% of the monthly income, which could exemplify substantial savings. There are two reasons why such savings could be classified as sufficient. Firstly, when it comes to subjective assessments, I assume that this saving-related pattern would be suboptimal and require improvement only if my non-basic needs, for instance, media products and entertainment, remained unmet. Secondly, some subject matter experts’ opinions indicate these savings’ adequacy. As per Elizabeth Warren’s popular 50/30/20 budget distribution system, a perfect amount of a person’s after-tax income to go to savings is 20%, and my savings exceed it significantly (Saputra et al., 2019). Considering the abovementioned results, my current financial situation could be called satisfactory.
Short-Term Savings, Savings Accounts, and Tips
After recent urgent expenses, the amount of money I have in savings is not very large. Therefore, some emergency situations, such as costly urgent treatments, expensive car fixings, or house renovations that cannot be postponed, could impact my budget severely. As for savings accounts’ importance, aside from offering safekeeping, such accounts enable the savings to work for the bank client’s benefit by earning interest (Lake, 2021). Additionally, they impose certain limitations on withdrawal operations, which could possibly discourage a person from making impulse purchases. Regarding the desired savings, considering my current expenses, I need to have between $21,000 and $24,000 in the emergency fund. This sum will enable me to survive a substantial period of time in case of losing the current source of income and searching for a new one. Some tips to follow to accumulate savings include assessing one’s spending habits critically by using budgeting tools that online banks offer. The use of automatic savings by asking the company to send a certain part of one’s monthly wage to the savings account is also conducive to financial security.
Other Takeaways Conducive to Improvement
Aside from the takeaways cited above, the exercise has taught me to assess budget variances and categorize expenses in an effective way, which could potentially improve my financial situation in the future. Firstly, I have learned that my projected expenses are not realistic enough and do not adequately consider the rising costs of services, including seasonal price fluctuations. Secondly, before completing the worksheet, my personal budget evaluation efforts were limited by reviewing basic spending reports from banks. Such reports do not classify gifts/donations as a separate category, which is important in my case. The experiences with this exercise suggest that more sophisticated and detailed cost categorization systems maximize an individual’s control over spending patterns.
Conclusion
To sum up, the budget analysis exercise has become a critical learning opportunity. Apart from encouraging an objective evaluation of income-to-expense ratios and the portion of income going to savings, it motivates reflections linked with the process of accumulating savings. This assignment also challenges a person to check financial projections’ accuracy and create a clear and detailed picture of actual expenses by categorizing them properly.
References
Lake, R. (2021). What is a savings account and how does it work? Forbes Advisor. Web.
Saputra, K. D., Setiawan, K., Suryani, D., & Purnama, Y. (2019). Mobile financial management application using Google Cloud Vision API. Procedia Computer Science, 157, 596-604. Web.