A budget is the most fundamental and most effective financial
management tool available to anyone. Yes, anyone—whether
you are earning thousands of dollars a year, or hundreds of
thousands of dollars. It is extremely important to know how
much money you have to spend, and where you are spending it.
Yes, some of your "spending" might be for investments,
but there is an important distinction between creating a personal
budget and deciding where to invest your extra income. A budget
is the first and most important step towards maximizing the
power of your money.
Just about everything. A carpenter would never start work
on a new house without a blueprint. An aerospace firm would
never begin construction on a new rocket booster without a
detailed set of design specifications. Yet many of us find
ourselves in the circumstance of getting out on our own and
making, spending, and investing money without a plan to guide
us. Budgeting is about planning. And planning is crucial to
produce a desired result.
A budget is a money plan. With it, you can organize and control
your financial resources, set and realize goals, and decide
in advance how your money will work for you. A budget can
be as simple as it is powerful.
So what benefits, specifically, can you expect if you set
up a budget? Naturally, the answer to this question will be
different for everyone. But here are some of the most common
benefits that people see when they start a budget:
- Know what is going on. Personal budgeting
allows you to know exactly how much money you have—even
down to the penny, if you so desire. Furthermore, a budget
is a self-education tool that shows you how your funds are
allocated, how they are working for you, what your plans
are for them, and how far along you are toward reaching
your goals. That leads us to our next benefit.
- Control. A budget is the key to enabling
you to take charge of your finances. With a budget, you
have the tools to decide exactly what is going to happen
to your hard-earned money—and when. You can be in
control of your money, instead of having your money limit
what you do.
- Organization. Even in its simplest form,
a budget systematizes, or divides, funds into categories
of expenditures and savings. Beyond that, however, budgets
can provide further organization by automatically providing
records of all your monetary transactions. They can also
provide the foundation for a simple filing system to organize
bills, receipts, and financial statements.
- Communication. If you are married, have
a family, or share money with anyone, having a budget that
you both (or all) create together is a key to resolving
personal differences about money handling. The budget is
a communication tool to discuss the priorities for where
your money should be spent, as well as enabling all involved
parties to "run" the system.
- Take advantage of opportunities. Knowing
the exact state of your personal monetary affairs, and being
in control of them, allows you to take advantage of opportunities
that you might otherwise miss. Have you ever wondered if
you could afford something? With a budget, you will never
have to wonder again—you will know.
- Extra time. All your financial transactions
are automatically organized for tax time, for creditor questions,
in fact, for any query, which may come up regarding how
and when, you spent money. Being armed with such information
sure saves time digging through old records.
- Extra money. This might well be everyone's
favorite benefit. A budget will almost certainly produce
extra money for you to do with as you wish. Hidden fees
and lost interest paid to outsiders can be eliminated forever.
Unnecessary expenditures, once identified, can be stripped
out. Savings, even small ones, can be accumulated and made
to work for you.
Think of your budget as a planning device, a means of setting
and reaching your goals. You project future expenditures (including
savings), record them when they're made, and see whether your
projections were good. If they aren't, you make modifications
on your planning or spending whichever is out of line.
- Learn to do simple repairs yourself
- Do your own decorating
- Lower the thermostat at night
- Plan meals to use minimum food
- Use lights only when necessary
- Give up all unnecessary services on your telephone
- Determine your savings goals
- Be willing to compromise
- Use payroll deduction for savings
- Save on a regular basis: Pay yourself first
- Alter your spending habits
- Pack a lunch as often as possible
- Cut down on meals away from home
- Purchase generic or store brand food
- Grow a garden
- Use leftovers
- Limit food shopping to once a week
- Make a grocery list and use it!
- Get rid of one car
- Consider moving closer to work
- Drive small cars that cost less to operate
- Do your own oil changes, etc.
- Buy clothing that is washable
- Hang clothes on clothesline instead of using dryer
- Mend clothes yourself
- Have children change into play clothes
- Buy off season when prices are drastically reduced
- Investigate government or church operated nursery
- Share child care responsibilities with a friend or neighbor
Gifts and Donations:
- Make gifts instead of buying them
- Give of your time instead of money
Recreational and Entertainment:
- Do family things that are inexpensive
- Take vacations at home
- Use public parks and picnic areas
- Eliminate cable TV
- Use a free internet provider
- Select cosmetics that are reasonably priced
- Select a hairdresser that is reasonable priced
- Wear a hairstyle that requires little maintenance