Time To Plan, Budget And Save – As a student, the importance of planning cannot be overemphasized. Planning is the process of making advanced decision on future events and uncertainty. Planning is the fundamental management function. It involves deciding ahead and beforehand on what is to be done, how it is to be done, when it is be done and who is to do it. The planning process enables the capability to command the future instead of being swept away by the future and its challenges. Many authors have defined planning from their own perspective but the result of all their definitions points at foresight, making decision and solving problems.
The uncertainty of the future is a very good reason students should plan, budget and save. It is difficult to forecast or predict the future conditions and events accurately but planning will help you get ready for any eventuality. As a student, you should always set goals and make plans to achieve these goals.
Planning is a determination of a future course of action to achieve any desired result. It is the process of thinking before doing.
Planning and budgeting go hand-in-hand. Budgeting is a type of planning system because you are getting yourself ready for future events. Budgeting is often related to finance and as a student, it is important to create a spending plan for your money be it allowance or income (for the student-workers). Budgeting will ensure you have enough money to meet your needs. It will help you balance your income and expenditure and control your spending.
The process of budgeting leads to saving. When you save, you are been protected from events of financial emergency and avoid debt. The process of saving will give you a greater sense of financial freedom. It is very important for students to cultivate the habit of saving as it will ensure you do not couch- surf at your parents.
In this article, we will be discussing:
- What planning, budgeting and saving is
- The relationship between planning, budgeting and saving
- Difference between needs and wants
- Importance of planning, budgeting and saving to students
- 6 tips on how to budget
WHAT IS PLANNING, BUDGETING AND SAVING
Planning as defined earlier is said to be the process of making advanced decision on future events. It is always said that “he who fails to plan, plans to fail”. For everything that we do in life, we have to plan. Every country plans so as to know how to allocate its resources to the various sector of its economy. Planning makes taking control of your future easy. This has been a problem for many youths and this makes it difficult for us to make progress in certain areas of our lives.
Some authors defined planning from their own point of view but all the definitions pointed at foresight, decision making and problem solving. We will be looking at some of the definitions.
The plan of action is, at one and the same time the result envisaged, the line of action to be followed, the stages to go through and the methods to use. – Henri Fayol
Planning is a function that determines in future what should be done, how it should be do, when it should be done and who should do it. – Theo Haiman
Planning is the thinking process, the organized foresight, the vision based on facts and experience that is required for intelligent action. – Alfred and Beauty
Planning is the selection of objectives, policies, procedures and programmes from among alternatives. – M.S. Hurley
From all the definitions, we will see that planning is essential in every walk of life. Planning starts with setting goals or objectives then laying down actions that should be followed in achieving the set goals.
Budgeting is the process of setting out a plan to spend your money in the best possible way without overspending. Budgeting is very important to help manage your money. Budgeting is a type of planning process as said earlier. It helps you curtail your spending and maximize satisfaction.
As a student, you should try to take the budgeting process serious as it will help your keep track of how you spend. This process will help you differentiate your needs from your wants and give you a broader understanding of why your needs should come first. Your budget could be daily, weekly, monthly or yearly but whichever way, you should try making a budget according to how your income comes. Budgeting allows you to plan for short and long term expenses. It gives you control over your finances.
Saving is the act of keeping money aside for future use rather than spending immediately. The money saved can be used for different purposes and also emergencies in the future because the future is uncertain. Saving is an important process as it helps you reach your financial goals and provides financial security. This is one of the best financial habits to cultivate. Most times, it seems difficult but in the end, it gives a sense of financial freedom. When you budget, you are creating an avenue to save because budgeting helps you control your spending and this helps to save money.
When we plan, we tend to budget so as to control our spending and controlling our spending will help us keep money aside which leads to saving of money.
RELATIONSHIP BETWEEN PLANNING, BUDGETING AND SAVING
As it has been seen, these three processes go hand-in-hand. An effective planning process will aid budgeting and when a budget is adhered to, it will lead to consistency in saving.
For instance, as a student, you have set out a goal of paying your house rent and tuition fees from your income. Firstly, you will have to set a plan on how to achieve these goals maybe increasing your working hours to get more wages. You prepare a budget which could be monthly showing your actual income and expenses for the month. This will help you know the amount left for saving and control your spending so as to save up for your tuition fee and rent.
Planning helps you foresee and make decisions concerning future events; budgeting will help you control your spending and make room for future events while saving will help you meet up with the future events and avoid debts.
DIFFERENCES BETWEEN NEEDS AND WANTS
These two terms have been used interchangeably in many cases. It is very important to know the difference between wants and needs. Figuring out the difference can be confusing because most people see needs as wants and some others see wants as needs. Many authors have tried differentiating wants from needs and have buttressed their reasons.
In economics, wants are viewed as desires or wishes to own goods that give satisfaction. This desires are insatiable that is they cannot be satisfied because they are many. Wants are the things that you would like to have.
Needs on the other hand are what you can’t live without. They are essential and somewhat important. It is an essential requirement. Needs are so important that in some cases, one might die.
The ability to differentiate between your wants and needs will help you in making your budget. Needs are the most pressing wants. In economics, we were taught to arrange our wants according to how pressing they are and using a scale of preference. This is because our wants are numerous and the resources to satisfy our wants or needs are limited. So in planning, budgeting and saving, we shouldn’t see luxuries like going on vacations, dining out as needs or essential because we can do without them. We should scale things that are necessary above luxuries so as to meet our financial goals.
No one is saying you wouldn’t get what you want, but it shouldn’t be a priority to you and shouldn’t get in the way of achieving your goal. You have to set your expenditure at par with your income or you will see yourself in debt and end up starting all over.
The 50/30/20 rule of budgeting by Elizabeth Warren and her daughter Amelia Warren Tyagi categorized budget into three; needs, wants and financial goals. In illustration, they advised that 50% of your budgeting should go for needs; 30% for wants and 20% for financial savings. But it should be noted that this could change depending on personal circumstances as human nature is dynamic.
The differences between needs and wants are highlighted below for clear understanding.
|Needs are essential for survival.||Wants are desire and things we wish to have. They may not be essential.|
|Needs do not change overtime.||Wants can change over time.|
|If they are not met, it can result to adverse outcomes.||If they are not met, it can only lead to mental distress.|
|All individuals have the same basic needs such as clothes, shelter and food.||Wants may differ from one individual to another.|
IMPORTANCE OF PLANNING, BUDGETING AND SAVING TO A STUDENT
These three processes are so important to gain financial stability and security. We will be discussing the importance in three sections.
- The importance of planning to students
- The importance of budgeting to students
- The importance of saving to students
THE IMPORTANCE OF PLANNING
- PLANNING BRIDGES THE GAP BETWEEN WHERE WE ARE AND WHERE WE WANT TO BE
According to Koontz and Odennell, when we plan, we are deciding in advance what we want to do, how we want to do it and who will do it. Planning helps to channel our mind towards achieving our goals and it helps us set a course of action to achieve those goals.
- PLANNING WILL HELPS YOU MEET THE CHALLENGES OF LIMITED RESOURCES
There wouldn’t be a need for planning if the resources (financial and human) to satisfy our needs are unlimited and cheap. Due to our numerous wants and limited resources, planning is needed to arrange our wants according to how relevant they are so as to allocate and use our resources efficiently to maximize satisfaction.
- PLANNING HELPS TO REDUCE UNCERTAINTY
It is often said that the future is uncertain and unpredictable. Planning will not make you become certain about future events but will help cover you from every uncertainty. It will give you’re a predetermined line of action to achieve your goals. The planning process anticipates some unforeseen conditions which may affect the attainment of your goals and make provision to meet these conditions and tackle them.
- PLANNING HELPS IN MAKING YOUR OBJECTIVES CLEAR
The planning process involves setting of goals and setting the line of action or programmes that will help in achieving this goal. For you to have or set a course of action, it means your goals are clear. So having a clear goal will serve as a guide for deciding the action to take.
- PLANNING HELPS YOU IN MAKING DECISION
When a goal has been set, the process of planning will guide you in choosing the best alternative from the different alternatives available and think critically instead of making hasty decisions that may have adverse effects.
- PLANNING HELPS YOU TO BE INNOVATIVE AND CREATIVE
Planning will compel you to find new, modified and smart ways of carrying out a task so as to remain relevant. It will channel your effort towards finding better ways of solving problems.
IMPORTANCE OF BUDGET
Making of budget is very important in managing your money. Some of the importance is highlighted below.
- IT HELPS YOU CONTROL YOUR SPENDING
The budgeting process will guide you on how to channel your spending. Most people are fond of buying by impulse, that is, they mostly buy what they didn’t plan for and end up regretting. A budget will help you overcome the challenges of impulse buying. If you cannot control your spending, you tend to spend above your income in most cases and it might lead you to fall into debts.
- IT HELPS TO SAVE MONEY
The main aim of budgeting is to control your spending so as to have some amount of money to keep as savings. In most budgets, it is advised that savings should be listed among the budget items that is, a specific amount should be budgeted for saving. This will help increase your saving capacity and give you a true financial freedom.
- IT HELPS YOU TO MEET YOUR NEEDS
For someone who has a budget, he or she has arranged the needs according to how pressing they are. When you are preparing a budget, you are not placing your wants above your needs because as we said, needs are necessities. So budgeting will help you meet your needs and arrange them according to their level of priority.
- IT HELPS YOU STAY AWAY FROM DEBT
When you budget, you are balancing your income and expenditure. This means that you are setting your expenditure at par with your income. You shouldn’t spend more than your income. For instance, you earn $250 a week, if you make a weekly budget, you should place your expenditure at par with your income so as not to over spend and fall into debt.
- IT HELPS YOU MAXIMIZE YOUR SATISFACTION
A consumer’s main aim is to maximize satisfaction and minimize cost. Preparing a budget will help you set ways to minimize your cost and in the end, get maximum satisfaction. It will help you become rational in thinking. It will help direct you towards allocating your limited resources (money) in the most efficient way and get value (satisfaction) for your money.
- IT HELPS YOU PREPARE FOR EMERGENCIES
Like we said earlier, the future is filled with uncertainties and cannot be predicted. Having a budget, will prepare you for unexpected events. When the need arises for this, if you have a budget and also saves, you will have a succor and will not fret or borrow money. You will just fall back to your savings and save the day.
WHY SHOULD STUDENTS SAVE?
- Savings tend to serve as a long term and future security
- Savings help you to clear debts and give you financial freedom
- Savings help you meet up with your needs
- Savings give you this self-confidence and put you in control.
- Savings serves as a succor in time of emergency and unforeseen events.
- Savings will serve as a source of capital to start up a business venture and entrepreneurship career, making you self-employed.
6 TIPS ON HOW TO BUDGET
I will be giving you some tips on how to prepare a budget but the most important thing is adhering to the budget. Some of the tips are:
- NOTE YOUR INCOME (WEEKLY OR MONTHLY)
It is very essential to identify the amount of money that you will receive either at the end of the week or month.
- LIST YOUR FIXED EXPENSES
These fixed expenses are seen in most cases as the most pressing needs to be met. They are the “can’t do without”. There are constant every month. It might be utilities, rent etc.
- LIST YOUR VARIABLE EXPENSES
These variable expenses are seen to change from month to month. They are not really pressing because they are not really fixed.
- SET YOUR GOALS
This is setting a list of your financial goals which may be either short-term or long-term.
- CONTROL YOUR SPENDING HABIT
The only way for a budget to be effective is to control your spending. If you are able to control your spending habit after making a budget, you will use your resources efficiently
- KEEP TRACKING YOUR PROGRESS
In conclusion, I cannot overstate the importance of planning, budgeting and saving because they are necessary processes in setting our future right. Planning is an important tool in our everyday life. Every great entrepreneur sat down at one point and made a plan on how to start up their ventures and as the venture grew, they still employed the planning process because the planning process is continuous.
So as a student, you should plan, forecast, thinking critically and creatively , formulate goals and objectives and also set the line of action to follow so as to achieve your set goal.
“If we could first know where we are and from wither we are heading, we could better judge what to do and how to do it” – Abraham Lincoln
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