When you hear the word “budget”, what does it mean to you? If you’re like most people, you probably think of it as an unpleasant activity that means you have to financially deprive yourself. This couldn’t be further from the truth, yet this is the typical reason that most budgets fail.
When you hear the words “creating a budget”, what do they mean to you? If you’re like most people, you probably think of it as an unpleasant activity that means you have to financially deprive yourself. This couldn’t be further from the truth, yet this is the typical reason that most budgets fail.
Think of it as Managing Money
Your budget isn’t created to make your life miserable; it is simply a guide to help you manage your money. We all have income, and we all have expenses, and without proper allocation of the money something may fall short. The goal when creating a budget is to lay the foundation for allocating what portion of your income is required to cover each expense.
How do You Create a Budget? It's Like a Recipe
If you are going to bake a cake from scratch, you’ll probably want to use a recipe to ensure it bakes properly and tastes delicious. A recipe is simply a list of required ingredients along with the quantity, followed by instructions on how to add them together. If the recipe is followed properly, you will be rewarded with a tasty final product.
Your personal finances aren’t much different. Your income is the sum of ingredients, and your expenses are the quantities to use, while the budget tells you how to put it all together. With a cake recipe, if you’re short an egg or put in too much flower, the cake will not taste right or even bake properly at all. The same goes for your finances. If you spend too much money on one expense it may make you short on another expense, which would yield results that are less than expected.
Take Control of Your Money
When you create a budget, you take control of your money so that it doesn’t control you. Don’t let the negative image of a budget making your life miserable keep you from taking control. You can still enjoy yourself and even include discretionary or “fun money” in your budget. The goal is to simply create an outline for your money that puts you in control so that it doesn’t control you.
By following this advice on how to create a budget, you'll make your money work for you so you're free to enjoy the rewards it brings.