IS ACCOUNTING A LIFE SKILL?: 02

BUDGETING & MANAGING YOUR SPENDING

A lecturer once said that the most important accounting lesson that most people miss, that can also be applied in life, is that ‘if you always spend less than what you earn, you will be financially free.’

Spending more money than you have leads to a negative bank balance and that translates to additional banking fees that put you further in the hole. To prevent this from happening, people usually use a budget.You create a budget by looking at your income and your expenses and make sure that at the end of your pay period you have enough to cover everything. You do this by cutting down expenses in some areas (such as eating out or entertainment) to “make ends meet” each month, and hopefully have a few rands left for saving.An accountant does the same thing for an individual, business or organization, but usually with a different goal in mind, which is to make a profit. They look at cash flows, expenses, inventory, and more. The goal is to have a positive balance at the end of each cycle or period.

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Sources: Why is Accounting Important in Everyday Life?, ECPI University, June 5, 2017