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Financial Literacy


In Unit 2 of this module, we were briefly introduced to the concept of budgeting & why it is necessary for personal finance. Let us now elaborate on this topic & discuss its benefits.


What is Budgeting?

A budget is a financial plan which you can use to allocate your income towards -

  • Expenses
  • Debt payments
  • Investments

The process of preparing this budget is called budgeting.

Importance of Budgeting

Budgeting is crucial for reaching financial goals effectively. Here's why:

  • It boosts awareness of your financial situation.

  • It helps you save more money.

  • It prepares you for emergencies.

  • It reduces debt.

  • It aids in making smarter financial choices.

  • It prevents overspending by managing expenses.

What are the Benefits of Budgeting?

Budgeting has many benefits. 

  1. It can improve your lifestyle. You can stop living ‘paycheck to paycheck’ and save efficiently if you plan a good budget.
  2. Budgeting is the first step in moving towards your financial goals. Suppose your goal is to be able to save enough to deposit funds into a mutual fund every month. 
  3. If you provide for it in your budget, you will understand what expenses you might have to cut down to save enough for your investment.
  4. When you save money by budgeting, you save it for your future. Therefore, a good budget can assist you in retirement planning as well.
  5. Making a budget can help you in creating a fund of additional money. You can use this fund in case of emergencies instead of borrowing unnecessarily.

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