Why is it Important to Plan your Personal Finances?

Planning your personal finances is the most important thing you can do when it comes to trying to achieve financial stability. You will be able to know how much you spend per month on necessities, how much you can save each month, how much you have left over to spend on incidental expenses, and much more. This knowledge will grant you financial freedom – since you know how much you are spending, you will no longer have to worry about overspending or not saving enough!

Although it may seem like a lot of work, the first step in preparing to plan your personal finances is saving and recording everything. You must save every receipt, bill, and statement so that you can make an accurate budget. Then, at the end of the month, you can log your income and your expenditures, and examine which of those expenditures were necessities and which were luxuries. Once you have done this for a few months to establish a pattern, you can decide what your budget should look like.

The best way to create a good budget is to allow yourself flexibility in your essential purchases. In your budget each month, you should pay all of your necessities first – for instance, taxes, electricity bills, and so on – and then allow yourself a large margin for other frequent but irregular payments, such as debts. Then, with your remaining money, you should allocate an amount for retirement. Your leftover money should be put in the bank and spent on luxuries when necessary.

It may be hard to determine how much of your income should go to each section – essential purchases, other payments, savings, and luxuries – but it is different for each person. You can use a budget one month and see how it works, modifying it for the next month if necessary. Although budgeting may seem like a large task, it will pay off in the end. You will no longer have to worry about whether you can afford something at the store and have enough left over for bills – because you will have already planned it out. Stick with your budget, and the rewards will come.

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Graham Billings

Graham Billings is a senior at the University of North Carolina at Chapel Hill with a double major in Economics and Political Science. He plans to graduate in December of 2009 and then attend law school in the fall of 2010. He is a member of the Economics Club at Carolina, which brings in speakers and hosts events in order to discuss current economic issues and help those who do not have a background in economics become more familiar with it. He is a National Merit Scholar and Dean’s List recipient. He is originally from Greensboro, North Carolina and attended the Early College at Guilford for high school, taking classes at Guilford College. In addition to economics, his academic interests include the legal and political system. He headed the only student-run, high school-level Honor Court in high school and participated in a national model Congress in San Francisco, run by Harvard students, and won awards of excellence for his work on the mock Supreme Court. Additionally, he tutors Carolina students in economics on a volunteer basis.

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