Why is a budget important? A budget gives you control over your money and your life. It’s just that simple.
Why do you need a budget? Your budget allows you to create a sensible framework for how you live your life.
The contents of your budget reflect the fabric of your daily existence. You must recognize how you really live and how you want to live. There are decisions which must be made. You should be the one who makes them, not the forces of arbitrary circumstances. Your budget is the connection between the resources you have and how you construct your life.
If you are in control of your life, you will feel better than if you are not. You may think that setting up a budget and living by the terms of your budget is more trouble than it’s worth. You would be wrong. The budgeting process brings clarity.
Begin by making a list of your income and expenses. Then, throughout a one month period, keep a daily journal of all your actual spending. That’s right–all, including cash, checks, credit cards, and debit cards. At the end of the month, categorize the spending noted in your journal. Keep it honest. If you really spend money on three candy bars a week, make a category for that expense. Don’t fool yourself. If you don’t recognize the reality of the expense, you haven’t made it disappear. Some of your money is still dedicated to the purchase of those candy bars. You would do well to create a category called “Candy Bars” and include an allocation in your budget.
At the end of the month, add up your total spending. Compare the total spent with your total income for the month. If you have more expenses than income, review the categories of spending and assign levels of importance or necessity. Then you can reduce or eliminate the amount spent that is above your income. If the income is greater than the expenses, you have a surplus. Allocate the surplus to one or more categories that are important to you. Your budget has given you a tool you can use to prioritize spending. The budget also allows you to plan your spending in ways that provide for necessary expenses while including some pleasurable expenses.
In addition to a journal, you will need a notebook with ledger paper and some number ten envelopes. The ledger is where you keep track of your income and expenses. You use the envelopes for your cash spending.
One envelope will have “Candy Bars” written on the outside. As the month progresses, the cash in the candy bar envelope will diminish; you will clearly see how many candy bars remain for your enjoyment that month. When the envelope is empty, remember that there will be more candy bars next month. If you feel that the “Candy Bar” category is inadequately funded, you can review the ledger and re-prioritize so that you have more money allocated to candy bars. However, you will also have to reduce spending in one or more other categories so that you can keep your expenses in balance with your income. You are in control.
When you use a budget, you can effectively direct the financial operation of your life with a discipline that you create for yourself. By choosing order over chaos, your life is more enjoyable.
