What Is A Budget and Why Do You Need One?

A budget is simply a plan for your money. That’s really all it is. It’s a plan for how to get from Financial Step A to Financial Step B.

If you want to drive from Phoenix to Chicago, you need a map. If you want to bake a birthday cake, you need a recipe. If you want to get rich, you need a budget. A budget is your financial road map. It’s your recipe for money.

We’re going to show you how to make one, and how to use it correctly. Perhaps most importantly, we’ll make sure you don’t end up shivering and convulsing on the floor at the mere mention of the dreaded words: let’s make a budget.

The great misconception about budgeting is that people think a budget is intended to cramp their style. As if living on a budget means eating buttered bread for every meal. As if it means no restaurants, no date nights, and no vacations. This couldn’t be further from the truth!

A budget is not handcuffs for your money. A budget is a plan for your money! It’s the budget that sets your money free.

So if you want to pay off your debt, go on vacation to Hawaii, or plan for retirement, you need to start with a budget. It’s one thing to have money, and it’s great to have goals. But it’s within your budget that you tell your money what to DO! It’s within the budget that you take control of your money, and stop letting your money control you.

Zero: The Most Important Number On Your Budget

Now here’s something to wrap your brain up in a pretzel. When a proper budget takes into account all of the money you make (your income) and all of the money you spend (your expenses) in a month, you end up with $0 left at the end of the month:

- Expenses

But wait… I thought a budget was supposed to help me save money! Why is there a big fat $0 at the end of my budget?

This is why. And it’s something many people miss and gloss over. A budget is a plan for every single penny you have. Some of your money each month is going to go towards bills. Some will go towards debt. And hopefully more than a little will go towards savings. But each of these things are “expenses” in the eyes of the budget, and each of those expenses need to be planned for.

The financial planners call this a “zero based budget”. Here you account for every dollar you’ll earn and give it a job to accomplish for the coming month. And at the end of the day, you’re left with exactly that: $0.

And that’s a good thing!

So, ready to spend all your money this month? Let’s take a stab at your first budget!

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