EXPLAINING THE SIGNIFICANCE OF BUDGETING TO CLIENTS

Most people only resort to budgeting when they are already short on cash or undergoing a major transition. But this should not be the practice. Budgeting is for people of all ages and any situation or milestone in your life, such as buying a house and getting married, regardless of the current financial situation. That is what financial advisors reiterate to their clients.

Why explain the importance of budgeting to the clients? In essence, it helps people plan short-term expenses, avert a crisis, or prepare for major changes.

Creating a budget helps an individual plan for short-term, mid-term, or long-term expenses. Some examples of expenses include food, appliances, house, vacation, education, savings, and retirement. An individual can track spending by listing down the money expected over the coming months or years and money allocation for each item in a notebook, spreadsheet or financial/online software. That way, one can determine when to increase or scale back on spending, as well as the timeframe for major goals. If you are not satisfied with the figures, there are some ways to improve the overall financial situation, including paying off debts like credit cards, seeking a promotion, or finding another job.

Budgeting enables a person or family to plan ahead any major purchase or life change. For example, if you are planning to buy a house, you can figure out the amount to be allocated for downpayment, monthly amortization, and the like. Upon crunching the numbers, you can determine whether you can afford it. And if yes, the sacrifices needed to make it happen.

Some things happen beyond control, which can affect your finances. Through budgeting, an individual or family can avoid, or lessen at the very least, its effect. In case you do not have an emergency fund or your savings have been depleted due to unforeseen circumstances, your budget will help you the expenses that need to be reduced or deferred to settle it.

Here are some tips to monitor your budget:

• List down every expenses, big or small
• Update the budget from time to time
• Budget by the month, not every payday
• Determine fixed and variable expenses
• Plan for important occasions (e.g. birthdays, wedding anniversaries, etc.)

Financial advisors, inculcate the importance of budget to your clients as much as you can. Make them understand budgeting is not just for the rainy days, rather, a financial habit they should follow regardless of current situation.