Budgeting in its basic form is identifying your monthly income and then assigning your earned dollars to pre-determined expenses or buckets of spending.
Having a detailed budget is not for everyone, but it can be helpful for a number of reasons.
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How to Get Started with Budgeting
There are five simple steps when it comes to building a budget:
- Determine your after-tax income
- Calculate your total monthly expenses
- Set your savings goal
- Have fun with the rest!
- Track your progress and adjust as needed
Getting started is easy, and you can get the full how-to guide on building a budget from scratch here:
A personal budget can be defined as:
A financial plan that deliberately assigns personal income towards expenses, debt repayment, savings, and investments.
At the end of the day, a budget is a plan on how to use your money.
Most people view a budget as a monthly budget and measure it on that cadence, but you can also budget weekly, daily, or on any other cadence that works for you.
Why Budgets Matter
A budget is helpful for a few reasons, but in general it’s most useful for bringing clarity to your finances.
Having a detailed budget is not for everyone, but below are some of the top reasons to consider having one:
- Provides financial clarity: At a minimum, building and tracking a budget gives you a clear picture of your finances. You can see exactly where your hard-earned money is going.
- Gives your money a purpose: Having a budget puts you in direct control of your money. You know exactly what each earned dollar should be used for, and no money “slips through the cracks”.
- Stops frivolous spending: It’s a lot harder to make that unnecessary online purchase when you know it’s not in your budget. A budget helps ensure you’ll comfortably pay your credit card bill on time and in full every month.
- Helps to prioritize saving: A budget helps ensure you prioritize saving and investing. Both are necessary for building financial stability in the future.