What is a Budget?

Keeping to a Budget

What is a Budget? 

So you want to start the steps to financial freedom and begin to be more responsible about the way you handle your money, but you don’t know where to begin. The best place to start is to create a budget, but what is a budget? If you break what a budget is down into smaller parts, you will see that it is much simpler than you think, and creating yours should be no problem.

Income

The basis of your budget is going to be your monthly income, it is what you will start with and use to distribute to all of your necessary items. It is important to include all money that you routinely take in each month so that you can accurately plan how you are going to spend it and on what. You want to keep your amounts as specific as you can, if you make overtime, or some other amount that may fluctuate, use your base amount for calculations until you have a new average that you can count on.

List of Necessities

Your budget is also going to be a working list of all of your monthly expenses. This list should first include items like rent or mortgage, any car payments, cell phone or other recurring monthly bills that must be paid. You must include any debt payments such as credit cards or loans that require consistent payments. Then start considering how to budget towards savings, retirement, or other specified goals. You may quickly realize that current circumstances leave no money left for much else, but recognizing financial constraints is a key step to developing a better plan.

Specific Amounts

Next to your individual budget items be sure to include the specific payment amounts for each. If the item has the same amount due each month then include that exact amount. If the item has a balance due that can change, look over your past statements and come up with your average payment and add a little extra just to be safe. When you have done the math for all the necessary payments, look at what you have left over monthly and allot it in appropriate amounts to the other items in your list such as entertainment and savings or investments.

BluePrints for Financial Goals

Once completed, your budget is the blueprint for your financial goals. You will use it to plan your strategy for paying off debts and saving towards the things you dream of having. The tighter your budget, the more quickly you will be able to achieve your financial goals.

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