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What Is the Purpose of Budgeting?
Hi! I am building a personal finance app rethinking what being 'smart' about money means from first principle. Sometimes it feels that 'saving' is not a lindy framework to think about your finances given current investment opportunity climate. I do realize that the notions of 'investing' and 'saving' are not contradictory, however the lessons of 'rich dad poor dad' book are loosing their relevancy.
TO tie this back to the title, I am trying to formulate the 'end' to which 'budgeting' is a mean. To then search for a solution that requires far less attention and effort than budgeting.
- PaulHoule 5y agoA lot of personal finance advice seems to start with "avoid identity theft" and move on to "raise your credit score". I always thought that if I took care of my bank account my credit score would follow. I've never stressed it about the small expenses that occur daily and monthly (e.g. budget $7.50 for lunch) but I do stress it sometimes about bigger expenses that occur somewhat randomly (car breaks down, have to reside the rental house) or times I've been between jobs. Budgeting is more a tool for managing and living with debt (add up your payments and that is your budget) than about savings and investing. The real challenge in personal finance I see is managing uncertainty.
- toast0 5y agoBudgetting is a means to forecast and plan for the future of your bank balance; this includes goal setting as well. What do you have now, what is coming in, what is going out, what will you have in 1 month, 3 months, 1 year, 5 years, etc. Once you have your budget, implementing the budget is a means towards reaching your goals. Being 'smart' with money to me, means not spending on frivolous things you can't afford, getting good value for the money you do spend (even if it is for frivolous things you can afford), and working towards financial independence. My definition of financial independence is a reasonable expectation of comfortable living without needing to work; could be investments, could be a pension or social security if it pays your bills, could be that you're comfortable living off the land in the wilderness (but I'm certainly not!). It may not be an acheivable goal for everyone, but I include it in being smart with money.