A budget is the itemized summary of income and expenses for a given period of time (monthly, quarterly, annually). A budget helps you visualize how much income is coming in and where money is being spent. Many people feel constrained by the word budget and often associate the term as limiting.
To overcome the dreaded term “budget” many financial experts refer to budgets as a spending plan. Spending means to use the money to pay for goods and services.
A spending plan is a blueprint to help you manage your income, spend on needs and wants, and allocate money towards future goals.
- A budget helps you understand your cash flow (income and expenses) and gives you the necessary information to make better financial decisions.
- 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.
- 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.
- A budget can decrease your stress level because you now have a financial plan of action.
What 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.
- Your Goals. What are your short-term financial goals? Want to buy a home or a luxury car? Maybe you want to go on a worldwide trip or send your kids to college? Or you need to save money or pay off debt?
A budget is a helpful tool that can support your big picture financial plan and vision for life.