If you started a new company today, the FIRST thing you would need is a plan. A budget that addresses the business’s income and outgo is just a plan put on paper. It would be inconceivable to start a business without a plan or a budget.
If you were going to take a trip to a place you’d never been, you need a plan (a map or GPS) to help you get there.
A budget is the foundation for personal financial success.
A budget is simply a spending plan that includes income from all sources and pre-allocated uses of that income. We have five primary uses for that income:
2. Paying Taxes
3. Repaying Debt
4. Current spending
5. Saving for the Future
Within each of these primary uses, there can be multiple sub-categories. Groceries, eating out, and entertainment would be sub-categories of the Current Spending category. Investments, college savings, and emergency fund cash would be a sub-category under Saving for the Future.
The Purposes of a Budget Are:
- To help you to set financial priorities by making decisions ahead of time.
- To help you spend less than you earn … and to do it for a long time.
- To help you plan for those unexpected, yet inevitable surprise expenses.
Key Concept: A budget must be flexible.
Just mention the word budget and almost invariably people think about lack of freedom, constraints, inflexibility, guilt, and other negative images. But in reality, making a budget is the same as taking a trip along a pre-planned route. Want to take a side trip? Sure, just know where you’re going. Run into a detour? Life happens! Setting a clothing budget for your 12 year old son at the beginning of the year means nothing if he grows 8 inches in the next 10 months.
Living without a short term spending plan can cause feelings of fear, frustration, confusion, and oftentimes even relationship conflicts. So go ahead, give yourself the gift of a budget!
Don’t use your checking account balance as the basis for making spending decisions.
With a budget, you’re able to know what you have available to spend. Not every dollar, pound, rupee, peso, or yuan is available to spend. Budgeting causes you to focus on “net spendable income” because the amount available for Current Spending is the amount that remains after your priorities, after taxes, after debt repayment, and if you tithe–after tithing.
The basics of setting up a budget are pretty simple, and if you’ve accurately allocated income according to your priorities, a budget isn’t that hard to follow.
- List and add your income from all sources.
- Use the last few month’s bank statements to organize and list your expenses.
- Decide what expenses should take priority.
- Allocate funds to these expenses according to priority.
- Next month, compare your budgeted expenses to your actual expenditures.
- Make adjustments as needed.
What DOES become difficult is the tracking of your expenditures. For this reason, I recommend budgeting software such as Mvelopes Personal 3.5*. This is a fantastic budgeting software system that does all the organization for you. Mvelopes has put together a Flash Video you can watch to get an idea of how it all works. Give it a few seconds to load and I think you’ll be impressed as I was.
Forget what you know about traditional budgeting. Mvelopes is a revolutionary spending system that will help you:
- Create a household budgeting plan that you can use!
- Recover income from hidden spending, sometimes up to 10 percent.
- Always know exactly how much you have left to spend.
- Instantly know the impact of every spending decision.
- Automatically track all your purchases.
- Easily pay ALL your bills online.
- Effectively manage credit card spending.
[tags]budget, budgets, budgeting, setting up a budget, shopping, holidays, spending plan, spending, money, finance, personal finance, personal finances, financial management, personal financial management[/tags]
Note: *affiliate link