Economics Week 5 Budgeting

Prompt: “How does making a budget reduce impulse shopping?”

Making a budget allows you to add up all of your funds and prioritize where you spend them. It allows you to allocate resources in a responsible disciplined manner, and allows you to take into account whats most important to you. We all have things we want or need to spend money on. Shopping for groceries, paying bills, going out, buying luxury or leisure items, etc. The purpose of budgeting is to clarify to yourself which of these is most important, and to add up how much money you’ll need to spend on it. From there you’ll know how many leftover funds you have for less vital items.

Say you have one hundred dollars. You have to pay for car insurance which costs thirty dollars, schedule a dentists appointment which costs twenty dollars, buy groceries for thirty dollars, and you’d also like to take your partner on a date this weekend. The first three items are things you need. The final item is something you want. Budgeting allows you to analyze all four items, address which of them is most important to you, and plan to allocate your funds based on that importance. In a scenario like this an individual would be best off paying for the insurance, groceries, and medical expenses first. After those are paid off they can spend their remaining funds taking their partner out on the town. If they didn’t think to budget, took their partner out first and spent forty dollars on them, they wouldn’t be able to afford the things on their list that they really needed.

Lets do another example. Say you are going shopping, and you have forty dollars to spend. You need to buy eggs for five dollars, milk for five dollars, bread for five dollars, and salad for five dollars. You would also like to buy some new clothes. While walking by a store you see a beautiful coat in the display window, but it costs thirty dollars. Now, if you hadn’t budgeted the impulse to buy the coat could be overwhelming. But you have budgeted, and you know that if you buy the coat you wont have enough leftover funds to buy your necessities. So you go shopping for the things you need, and while you do you research the coat you saw. Online you find the same coat for ten bucks. Budgeting just saved you twenty dollars, and you walk out of the store with all the food on your list.

In conclusion budgeting not only helps you avoid impulsive shopping, but it also helps you to determine what is most important. Once you’ve figured out what is vital and how much it costs you’re able to spend your funds in a much more beneficial and responsible way. When you make a budget you’re better able to see the big picture of what your money can go towards, and from there you can prioritize whats most important to you.