Understanding

What “Budgeting” Is

And Why Is It So Important?

 

 

 

What is a budget plan and/or budgeting?

⦁ It’s just a written plan that details the financial goals of a company or an individual – either current or future period of time. 
⦁ A budget is a formal statement of estimated income and expenses based on future plans and objectives – short term or long term.

 

  Being on a budget and having a savings account and/or really just having some money saved – are some of the effective and basic tools for managing your hard-earned money today believe it or not.. The term “budget” can easily turn many people off – they associate it with headaches, a lot of restrictions, and it can be a hassle.. A budget is simply a plan for “how you spend your money” or it’s a method for saving, borrowing and spending.. When you’re trying to manage or budget your money “knowing how much you bring home” and “how much you’re spending” is pretty important.. Basically, it allows you to find out if you have “left over money” every month or if you’re “broke in debt” every month.. 

  Despite the well-known fact of the importance of budgeting and knowing that those who pay attention to budgeting are most likely to climb up that ladder of success in a short and/or long period of time.. Believe it or not, many people do not stick with budgeting since they have little or no clue as to how to go about it or where to start..

“Budgeting” is essential and can make a huge REAL impact and difference in your life; hence, you should be really focused and aware of budgeting.. You should consider budgeting if you’re very serious about your current and/or future life goals.. Similar to – you wouldn’t build a house without a blueprint or try and build a house on water – would you? Same way – without budgeting you can’t build a stable financial future..

How To Budget And

Stick To It

  Let’s face it – It’s not an easy task sticking to a budget – it can be boring; however, it can be quite satisfying. Currently, keeping your hard-earned money and trying to manage it properly without going broke or “staying broke” – is hard.. Considering in this day and age, there’s simply a lot of “need to have” such as schooling, car repairs, a mortgage, a car note, parenting, etc.. Hence, we sometimes don’t have enough money for our “like to have” such as shoes, clothes, vacation, out to eat, that super nice expensive car, entertainment, etc.. The question is, how do you keep all of these things from eating away at your bank account? Keep in mind to never rely on or plan your spending around your “bank account balance” – you may view your current available balance as “free money to spend”, but it’s not..

  The road to financial freedom – nobody said it was going to be easy. But dedicating where your money goes each and every month, can really help you plan for the future, plus it gives you a feeling of being in control.. Irrespective of your financial dream, a budget is the first step toward reaching there.. A budget allows you to develop a master plan for your money – which reflects whatever your priorities and goals may be..

  However, even when you have drawn up a great “budget plan” and you think mentally that you’re ready to apply yourself, sticking to that plan is key! There will come a time when you might be tempted to pull money out of your “vacation money” to purchase a pair of sneakers or a cool new outfit, when you already spent all of your “clothing budget”. In such a situation, the “I WANT” part of your brain can be very persuasive.

 However, here are a few “keynotes” to help you stick to your budget, even when your will power seems weak… “Planning” and “Prioritization” is a few key factors when trying to manage your money the smart way.. Make sure to invest in a “budget planner” to make the learning and growing process easier for you..

 

Here’s Something To

Think About

  Look at your sneaker collection, toy collection, gaming collection, movie collection, purse collection, transformers collection, “any real personal collection” and calculate how much money you’ve spent on that.. Now look at your savings account and see why your money is never growing.. If you don’t even know the least bit about a stock portfolio, your credit score, a credit history, a retirement plan, a 401k, a Roth IRA account, and basic investing, you have some serious homework to do – to better yourself for a better life.. Don’t stay constantly broke trying to “Impress other broke people”. Remember that thing about inheritance? You won’t have it to give or keep – if you keep feeding your appetite with “meaningless things”.

 

  Focus on the highest priorities in your life right now and then start to work your way down.. Remember If you find yourself with a negative number (this is knowing your monthly income and then minus your living expenses), you clearly spend more than what you bring home.. Either try and earn more money, or simply cut back on your expenses..

1. Necessities Above All

– Simply Put – “you have to survive” in a sense. Your basic needs are to be taken care of before “anything else” can happen in the budget.. This is not a new discovery, but you’d be surprised on how many people mismanage this step.. You go to a hotel for a few nights to “get away from life”? You have that so called extra money to purchase lottery tickets – right? You spend money on entertainment and electronics while finding it difficult to feed your children? You’re behind on the mortgage, and you can’t pay your car note, but you can spend money on cable service, maybe going to the casino and having expensive Birthdays and Christmases? – Why?

 Although it’s okay to spend money on electronics, entertainment, cable TV, “getting out of the house” once in a while to have a great time, even going out to eat and to the movies – but those are secondary priorities; hence, don’t deserve to be ranked high in the budget.. When you make such items rank first in your budget, you’re placing a very “high priority” on their importance – necessities should be covered first when creating your budget..

2. Be Realistic

  You must ensure that your budget is realistic.. Don’t cut back your entire entertainment budget and rename it to like “living inside” or “not going out or not doing anything” or your grocery budget so much that you only eat and survive off cereal and bread because that’s kind of crazy. The fast track to a budget is – you don’t have to cut out everything that you love, just cut back and learn to LIVE within your means of living.

3. Write Down Your Personal Finance Goals

  Create a simple written plan where you can keep track of your income and expenses. Statistics indicate an 80% chance of achieving your goals when you write them down – so why not write down your personal finance goals? Take a close look and ask yourself, do I have any savings or “left over money”? To find out, simply take your “income” and minus “all living expenses” equals negative cash or positive “left over money” which this is great because this mean you make enough to live and also have left over money to play with and/or save. If your answer is NO and you find yourself in the negatives – you need to cut back on your daily, weekly, even monthly spending activities until you can save and/or make some more money..

4. Try “Envelope Budgeting” – A Simple Way to Budget Your Money

  The term “envelope system” is a simple means of distributing money from your monthly budget to use for your daily, weekly, and monthly expenses. For each envelope represents a category.. Your budget to spend for the entire month you put cash in that envelope or “category”.. When the cash in the envelope runs out – you don’t borrow cash from another category and/or envelope..
The envelope system is a great way to plan your future spending; it is also a great way to keep track of your spending.. Great for any age, but young adults and/or teenagers love this method.

 For example.. If you budget $400 for eating out every month, that amount will be placed into your “restaurants” envelope and/or category.. You will use the money in that envelope to pay the bill every time you go out to eat… Should the money run out in the “restaurants” envelope before the end of the month, just remember, “you never want to borrow money from other envelopes or categories” – you won’t be able to go to any restaurants until you replenish that envelope – but that is a month to month basis only.. It’s a simple way to control your spending and ensures that you don’t spend more than what you make! 

 You should use envelopes for recurring expenses in your budget, such as:

⦁ Groceries
⦁ Restaurants/out to eat
⦁ Gas for Car
⦁ Car Insurance
⦁ Haircuts
⦁ Clothing
⦁ Entertainment
⦁ Rent
⦁ Credit Cards
⦁ Cell Phone
⦁ Electric Bill or Water Bill (if any)
⦁ Household Items
⦁ … Anything else you frequently spend money on

 

Why you have to practice the envelope system for it to work – well the envelope system really works!

 

1. It Will Help Discipline You

 Whether it’s with our eating habits, our spending habits, our productivity at work, and/or just buying things because they’re convenient, we all need discipline in our lives to make us better. When you practice being disciplined, it becomes easier for you to assume responsibility to all parts of your life – including money..

2. Your Budget Becomes Tangible

 The theory behind money is much more tangible when you use more of “cash” instead of credit cards, because you can easily overspend with credit cards.. Not going to harp on the subject about credit cards but individuals need to understand and learn credit cards can be used as a “lifeline”, not a “LIFESTYLE”. However, when you use the “envelope system” you become more conscious with your budget because every time you reach for an envelope to spend from it – you will always be reminded not to spend more than what you make and/or have.

  

Bottom Line: Budgeting is a continuous process, so it’s important to have a good budget plan for every month.. You can begin with weekly or monthly budgeting and scale up to yearly budgeting plans, which will help you organize and save money – with specific goals in mind.. Once you create your budget you should review it regularly, because income and expenses could vary from time to time.. Hence, you need to adjust your budget based on the current “needs” and “wants” in order to get the best out of your money.. Good Luck!