MONEY OBEDIENCE

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A budget is a list of all expenses you plan to make in a specific time period and a target for the amount those expenses may total. Most of the time a personal budget is based on monthly expenses, but sometimes daily, weekly, quarterly, or even annual budgets for personal expenses are drawn up.

When you set up your budget, you first have to think about what type of things you spend money on. Decide what expenses are necessary. Most people have to spend money on shelter, food, utilities, transportation, and such. These are the expenses you need to make in order to live and sustain yourself. Other necessary expenses depend on your personal circumstances; expenses for children and pets are examples. You likely have expenses that you do not need to make but want to make. Going to the movies, having some beers with the boys at the sports bar, or getting your nails done are expenses that you make for your pleasure only. Granted, life would not be as much fun without such treats, but we do not need to spend money on such activities for survival.

Once you know the various items on which you spend money, you want to think about how much money you plan to spend on each item. You might ask yourself questions like, "How much do I/we plan to spend on food next month?" It helps if you have recorded your expenses in the past because your past expenses are good indicators of your future expenses. For example, your eating habits will probably not change much from month to month. So, you can expect to spend as much money on food next month as you have spent on average during the last few months.

The purpose of a budget is threefold. First, a budget allows you to plan your expenses; it allows you to determine at the beginning of the month how much money you will have left over to put away for savings or investments. If your budget tells you each month that you will spend $200 less than what you make, you can take these $200 and put them into a savings account at the beginning of the month right away. This is what financial experts mean when they say, "pay yourself first!" Once that money "surplus" is in a savings account and not in your checking account, or in cash in your wallet, it is much less likely that you will actually spend the money. Budgeting and saving in this way increases the likelihood you will save up a good-sized nest egg over time. In a way you are playing a little trick on yourself which benefits you greatly.

The second benefit of making and using a budget is the incentive to record your expenses. This way, you can compare your planned or budgeted expenses with your actual expenses. Recording your expenses forces you to face the reality of how you spent your hard earned money. You will immediately see the result and feel the emotion it causes. You may have negative feelings of disappointment if you realize that you spent more than you planned, and maybe even more than you earned. Avoiding these negative feelings gives you a better chance that you will not exceed your budget, which you know you can only do when you spend cautiously. On the other hand, maybe you see that you have a grip on your finances because you spent within your targeted monthly allowance. This can generate really good feelings!

Third, keeping a budget and recording your expenses allows you to look at exactly how you spend your income. Should you struggle to save enough money or make ends meet, this information will help you determine what expenses you can cut out or cut back upon. If you did not have that information, it would be very difficult to better yourself financially. Gaining an understanding of your monthly expenses will help you make the right choices about your expenses in the future.

With budgeting the work really entails having to record your expenses. That is the only way you can compare your expenses with your budget. There is no use in making any plans to budget, if you never check how well your plans are coming along. That's like trying to lose weight without ever checking in with the scale or watching how much you eat. Comparing your actual expenses with your planned expenses will help you keep your expenses within the limits of the budget you have set up for yourself.

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