1. Why Do I Need a Budget?
Financial planners might disagree when it comes to certain topics, but I know of no one that will tell you to go without a budget. A solid budget, when adhered to, is the foundation of a successful financial household. Budgets are what make and break individuals and businesses alike. If you have a good one and stick to it, everything feels just fine. If you have a bad one, or you don’t have one, or even if you have one but don’t use it, everything can come crashing down faster than you can say, well I don’t know, maybe supercalifragilisticexpialidocious. Joking aside, it actually is a very important topic.
When implemented correctly, a budget is the framework that directs all spending, saving, and other financially related activities. Living without a budget is like aimlessly wandering around with no direction-you don’t know where you’re coming from, where you’re at, or where you’re going. Budgets give direction and stability to otherwise lost financial lives.
2. What’s In a Budget?
A budget is made up of three major sections: income, expenses, and savings. All sources of income should be added and totaled making sure to subtract applicable taxes. Expenses should then be listed as line items, generally divided into two categories: fixed and variable. Fixed expenses include housing, credit card payments, medical insurance and all those monthly bills that no matter how much we don’t want to pay we have to.
Variable expenses also might include payments we don’t want to make, but the amounts designated to those categories are more in our control, hence the title “variable.” Food’s a must, but how much we spend each month is more up to us than how much we spend on rent, in the short run, so food goes under variable expenses. In the long run, the division between fixed and variable expenses isn’t so clear, but for a monthly budget this rationale works just fine. After expenses are totaled, the value of income minus expenses should be allocated to some form of savings.
3. What Will a Budget Do For Me?
As previously stated, budgets give financial direction. When you begin analyzing expenditures and isolating where your money is going, it becomes much easier to see where you can cut costs and minimize waste. More often than not, we don’t realize how much we are spending until we studiously record and monitor all the financial activities we have going on in our busy and hectic lives. Whether we are wealthy or not, wasting money-obviously-isn’t in our best interest. Proper budgeting is what gives us the ability to minimize costs and optimize our financial circumstances.