Sunday, March 9, 2014

A look at the Budget

A budget is one of the most important tools available for taking control of one’s finances. A budget is a way to keep precise track of one’s money, how much comes in and how much goes out, and to determine how much to spend on various things. There are two main advantages to a budget:

  1. Have a pretty good idea of where your money is going.
  2. Takes the guesswork out of some purchase decision.
A budget is simply a way to keep track of what you spend and what you earn over a specific period of time, such as a week or month. Even if your spending is not excessive and you have been able to set aside some of your salary as savings on a regular basis, you should still have a budget. By keeping a written record of your expenses and your earnings, you will learn more about your spending and your savings habits. Budgets help you and your family work toward specific financial and other goals more successfully.

Before you work on a budget, you should analyze your goals. Think of the financial objectives you want to achieve. It may be a short term, intermediate or long term. A budget is supposed to help you achieve your financial goals and dreams. It is important to keep these goals in mind, especially if you have to cut back in certain areas.

A budget is flexible. We all know that unexpected expenses come up and cannot be avoided, such as car repairs and medical bills. Also, one’s should expect a budget to change over time as your income and expenses vary. People usually have a pretty good idea of where their money comes from. It is the spending that is the big mystery. This is perhaps the most important area where a budget can help – enabling you to figure out exactly where your money is going.

A budget should include a saving category – in other words, a pay yourself category. No matter how small the amount, a saving category is a good idea because of the many benefits of building up some financial reserves. A budget is not an end in itself, but rather is a tool to help you achieve your goal of taking charge of your finances.

The most important question is how your expenses compare with your income. Are you spending more or less than you earn? If you are spending more than you earn, you might already be aware of it from mounting credit card bills. This is perhaps the most serious sign of financial trouble and calls for immediate action on your part. This is the oft-repeated adage of “living within your means.”

The phrase “live within your means” sums up what is the best financial philosophy. If you spend less than you earn, you have money to save, and it is saving that are at the basis of eventually achieving financial independence. The unavoidable fact is that budgets are almost always balanced by cutting expenses.

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