You've had your own money for a long time now – be it pocket money or even your own income (see the article "I have income"). How do you use it? Do you save some of it or quickly spend everything you get? Do you carefully consider every purchase?

To get the most out of the money you have, a budget comes to your aid. What is it? In short, it's a plan for your money that shows how much money you receive, what you spend it on, and how much you can save to achieve your goals. A budget helps you manage your money, keep track of your income, expenses and savings. This way, you can prevent unpleasant situations – for example, running out of money before you receive your pocket money or your salary for the month.

 

Why is it important to have a budget?

If you make it a habit to regularly create a budget and follow it, you will undoubtedly benefit greatly in the long run. First of all, you will have constant control over your money and be aware of what you can afford to spend. This will help you avoid borrowing money and build financial discipline and responsibility. When you set goals, it is the budget that will help you plan the path to achieving them over time, since goals have a financial and time/temporal dimension. That is why a budget is a useful tool with which you organize and manage not only your money, but to a large extent your life as well.

 

Needs and wants

When you create your budget, you can critically review it and optimize your expenses. Expenses are the necessary means by which people satisfy their needs and wants. The former includes everything you absolutely need, such as food, clothing, or transportation. The latter brings you pleasure and make your life more fun – like new headphones or movie tickets, but you can live without them.

Keep in mind that needs and desires also change over time. Some of your desires can turn into needs. For example, while still in school, you wanted to have a car because you like to drive. If, after becoming a student, you start working as a courier with your own transport, this car and its maintenance will become a necessity.

As incomes and living standards increase, it becomes more difficult to set a clear boundary where needs end and desires begin. Thus, people's basic needs, such as food, clothing, housing are replaced by desires. For example, you want not just food, but to visit a certain restaurant. You will satisfy your need for clothing not with ordinary, but with designer jeans. In the second case, you add your personal criteria that are important to you because they bring you additional value and you experience positive emotions, pleasure, and excitement.

 

Financial goals

A budget is a particularly useful tool when you plan what you want to achieve, what funds you will need and how long you will be able to provide them. Or in other words – what financial goals you set for yourself. They can be short-term (up to 1 year), medium-term (1 to 5 years) or long-term (more than 5 years). For example, if you are saving for a concert ticket, you can plan for a few months, while saving for a more expensive phone may take more than a year. Goals that are related to your future, such as securing funds for your university studies, will require much more time. Yes, if your family can afford it, they will cover the main expenses, but you can also contribute with your savings.

Well-formulated financial goals are specific, measurable, achievable, realistic, and with a clear time frame (so-called SMART goals). For example, you decide to buy a new laptop for which you need 500 euros. Since you save regularly, you already have 200 euros. You can set aside 25 euros per month, which means you need 12 months to collect the remaining amount.

Financial goals help build a sensible attitude toward money, encouraging spending control, saving, and avoiding debt. They are therefore a key element in managing personal finances and achieving financial independence and security.