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How To Budget

How To Budget

Budgets provide peace of mind because they show you exactly what money you have coming in and what money you have going out and that as a result allows you to plan for the future. Budgets are normally thought of as being bad and involving significant personal sacrifice but that doesn't have to be the case. Without a budget most individuals and families tend to live beyond their means even if it is not intentional because it is difficult to keep track of what their expenses are and where their money is going.

It's easy to spend what you make but it is quite another thing to live below your means and plan for the future. It takes forethought and dedication to have goals and make sacrifices to get everything you want in addition to having financial stability and security. Budgeting accomplishes these goals because it shows a clear outline of what your finances are doing and will clearly illustrate if they line up with your goals.

There are three fundamental aspects to what makes a successful budget. The first is understanding what your money is doing and where it is going. The second is outlining what your goals are both in the short-term and long-term. The last, and probably the most difficult, is actually sticking to an established budget every month going forward. Once you know what you want and how you're going to get there it is simply a matter of implementing it and sticking to it until those goals are met.

To get a clear picture of what your money is doing use either a piece of paper, a spreadsheet or even better money management software to enter all sources of income and all monthly expenses. This will establish the first step which is understanding what your money is doing by creating a clear and concise picture. After these numbers have been entered you'll know right away whether or not you are currently living below your means or are spending more than you bring in. If you are living within your means then you're already well ahead of most other individuals because now you can start planning for the future. If however, you're spending more than you make then you'll need to make some difficult decisions about cutting certain expenses whether that be eating out less often or not shopping on the weekend.

Once you have a complete understanding of what your finances are you will then need to establish a list of priorities. These priorities might be something as simple as saving for a trip during the holidays or more complex like planning for retirement or establishing a college fund for your children. The more complex the priorities the more complicated a budget becomes because achieving multiple goals over different time horizons can make monthly spending more cumbersome for all involved. Significant resources may have to be freed in order to hit certain goals and not all goals may be achievable right away.

A plan is only as effective as its implementation. It doesn't matter how much work has been put into mapping out resources and establishing goals if the budget is not followed every month. The most difficult part of budgeting is making a plan and sticking to it. More often than not, much like New Year's resolutions, a few months go by and individuals miss going out to dinner or having a gourmet coffee every morning. So they make compromises and start treating themselves and before you know it they're back in debt. There's no magic formula to sticking with the budget. It takes will and determination to see something through for the betterment of yourself and your family.

Society today is all about instant gratification and living for today and an unfortunate consequence of this type of mentality is excessive debt, no retirement savings and stress every month when paying bills. Once you know what your money is doing and what you have to work with you can then adjust your behaviors to achieve goals. Budgets aren't for everyone but will benefit most individuals and families if they're serious about their financial security and stability for the future.

Image by: 401(K) 2012