What is considered the foundation of financial planning?

Budgeting serves as the foundation of financial planning because it establishes a clear understanding of income, expenses, and savings. It allows individuals to track their financial activity, prioritize spending, and allocate resources effectively to meet both short-term and long-term goals. By creating a budget, individuals can gain insights into their cash flow, identify areas for improvement, and make informed financial decisions.

Without a well-structured budget, other aspects of financial planning—such as investing, insurance, and tax strategies—may become less effective or unnecessarily complicated. For example, if someone invests in stocks without a solid budgeting framework, they may not have a grasp on how their investment aligns with their overall financial situation and goals. In summary, budgeting is the essential first step that informs and shapes all other financial planning activities.