Budgeting

Budgeting is a crucial aspect of financial planning, both for individuals and families. It involves creating a plan for one's income and expenses, allowing for more informed and effective financial decisions.

Advantages of Budgeting

1. Financial Control

• Definition: Budgeting allows individuals to gain control over their finances by monitoring income and expenses.
• Example: Knowing exactly how much money is available for various categories like groceries, utilities, and entertainment.

2. Prioritising Expenditure

• Definition: It helps in prioritising spending, ensuring essential expenses are covered first.
• Example: Prioritising rent/mortgage payments and utility bills over leisure activities.

3. Savings and Investments

• Definition: Encourages saving for future needs, emergencies, or investment opportunities.
• Example: Allocating a monthly amount towards a savings account or retirement fund.

4. Avoiding Debt

• Definition: Helps in avoiding unnecessary debt by limiting spending within one's means.
• Example: Using a budget to plan major purchases instead of relying on credit cards.

5. Financial Goals

• Definition: Assists in setting and achieving short-term and long-term financial goals.
• Example: Saving for a holiday, a new car, or a child's education.

Guidelines for Preparing a Budget

1. Estimating Total Income

• Include all sources of income: wages, benefits, and any other additional incomes.
• Calculate the total monthly income after taxes.

2. Listing All Expenditure

• Include fixed expenses (rent, loans) and variable expenses (groceries, entertainment).
• Keep receipts and bank statements for accurate tracking.

3. Allocating a Percentage of Income

• Assign a percentage of income to different expense categories.
• Follow the 50/30/20 rule: 50% for needs, 30% for wants, 20% for savings.

4. Allocating for Savings

• Prioritise saving a portion of the income.
• Aim for a minimum of 10-15% of the income towards savings.

5. Review and Evaluate

• Regularly review the budget for adjustments due to changes in income or expenses.
• Evaluate spending habits and make necessary changes.

Money Advice and Budgeting Service (MABS) Ireland

• MABS is a national free, confidential, and independent service in Ireland.
• Provides advice and support to people dealing with debt and financial difficulties.

Services Offered

• Budgeting advice and assistance in managing finances.
• Negotiating with creditors on behalf of clients.
• Providing information on social welfare entitlements and financial products.

Importance

• MABS plays a crucial role in guiding individuals towards better financial management.
• Assists in preventing and resolving debt situations.