What is a budget?

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A budget is a spending plan in which you decide how money is used (saved or spent). Two factors impact budgets – your monthly income and your monthly expenses.

Understanding your cash flow (income and expenses) will give you the necessary information to make better financial decisions.

  1. A budget can help you achieve many of your financial goals. Don’t think of it as limiting you from doing what you want to do. A budget is a plan that determines if it is affordable now or later down the road.
  2. A budget can help you identify areas where you’re spending money carelessly. It’ll help determine areas to stop spending, cut expenses and save.
  3. A budget can decrease your stress level because you now have a financial plan of action.

Budgets include:

  • All Monthly Income. You want to know how much money is actually coming in first.
  • Monthly Expenses. It includes a list of your monthly obligations such as mortgage/rent, loan payments, utility bills and discretionary spending cash.
  • Your Goals. What are your financial goals? Do you plan on retiring at 50 years old? Want to buy a home or a luxury car? Maybe you want to go on a worldwide trip or send your kids to college? A budget helps you identify your financial goals so you can better allocate your limited cash resources on debt repayment and savings.

Learn more about Creating a Budget.

Asked in Elizabeth, NJ on February 4th, 2015 in Budgets.
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