It's All about Attitude
Budget. For some, the word conjures up images of sacrifice, penny-pinching, and doing without. The most important ingredient in a successful budget is a positive attitude. At least 50 percent of budgeting is mental, so if the word makes you shudder, work on replacing this negative image with a positive one. If you've failed at budgeting in the past, ask yourself whether your budget was simply a review of how you spent your money after it was already gone, rather than a plan for spending and saving. The former is ineffective and frustrating. The latter is freeing and rewarding.
Attitude matters. Think of budgeting as eating right rather than being on a diet. You eat what you want in moderate amounts, you don't binge, you don't deprive yourself, and yet you end up better off.
Why Budget?
A budget is really a spending plan. You may struggle with an unrealistic plan to save thousands of dollars when what you really need to do is spend more wisely. If you think you can meet your financial goals without a spending plan, you will most likely be disappointed. Creating a spending plan is the first and most basic step you can take toward putting your money to work for you, regardless of whether you make thousands of dollars or hundreds of thousands of dollars a year.
Many people who spend more money than they make don't even realize they're spending too much until they're deeply in debt. Credit cards and loans are often the culprit, but spending without knowing how much money you have available can create the same problem. Decide in advance how to put your money to use instead of letting it happen accidentally. When you spend without a spending plan, you're not in control of your money; your money is in control of you. Budgeting works.
The Benefits of Budgeting
Budgeting and tracking your expenses shows you where your money goes and how seemingly inconsequential daily or weekly expenditures can add up over time. By tracking all of your expenditures, you can make conscious decisions about how to spend or invest your money instead of dribbling it away a dollar or two at a time. This can be the difference between never having enough money and being able to afford the things that are really important to you, such as saving for a down payment on a house, buying a new car, paying off credit card debt, planning for retirement, or saving for that trip to Cancun.
Having a working budget can greatly reduce the stress in your life that revolves around money issues. You'll know what you can or can't afford. You'll feel confident that you'll be able to pay your bills when they're due, or you'll have advance warning that there's going to be a problem, giving you time to plan alternatives.
An unexpected side benefit of budgeting is that it can improve your relationship with your spouse or partner. Money matters are the single largest cause of marital discord and divorce, so getting a grip on spending by coming to an agreement about your financial goals and working together toward those goals can have a positive effect on your relationship.
What Makes a Good Budget?
A good spending plan is flexible and realistic. It's a road map that offers alternative routes to your destination, depending on your personal road conditions. It should be dynamic, changing to fit your needs. If you have no kids, you wouldn't use the same budget as someone who does; if you live in rented housing, you wouldn't use the same budget as someone who owns his home. Life changes, and so should your budget.
The complexity level of a good budgeting system should match the level of your time and interest. Some people love recording the details. If you're not one of them, choose a simpler approach so it's not too much of a chore. The objective is to come up with a system you can live with for a long time.
