Okay, so most of us are familiar with the term “budget.” If it’s something that is fairly new to you, let me give a very simple overview and explanation:
A good builder uses a set of building plans to build a house. If he didn’t, the kitchen might get overlooked completely. That’s how important a plan is.
Yet most of us handle our finances without any plan at all.
Not very clever of us, is it?
Without a money plan, we will travel on our financial sea without a direction and end up shipwrecked on the island of financial grief.
A money plan is called a budget. A budget is the ultimate financial management tool and it is crucial for us if we are to get to our desired financial goals. Budgeting is simply having a plan or guideline showing how your money will be allocated or spent during a particular period. I usually build my budget for a month’s time, although you can certainly do it for a week instead, if that works for you.
The main objective of budgeting is to produce a spending list that is equal to or less than your income. Being aware of how you spend money is the most critical step in financial freedom. Budgeting is one of the hardest financial disciplines to keep (not the actual making of the budget; that’s fairly easy to do. It’s sticking to the budget that is difficult)! And that’s okay. It’s a work in progress, after all.
The best way to make a budget that you can stick to in the long term is to make it realistic. Never (and I repeat never) make it a financial starvation plan. Instead make reasonable allocations for all your necessities, entertainment and savings as well as the occasional luxury item.
Why should you even bother with budgeting?
You will be shocked at ‘non-necessaries’ you spend money on. If we can get control of the expenses that really don’t matter in the grand scheme of our lives, we can enjoy financial freedom eventually. And that is what we all want, isn’t it?