Being able to budget is how you take control of your money, and with money being what makes a lot of the world run, it is imperative that we spend some time on financial literacy. Money is a tool, it is how we get our food, where we live and things we want. Without money, we would be trading things for things, instead of paper, metal and numbers on a screen for things. A budget is really nothing more than a management system for our money, tracking how much we are taking in and how much is going out of our possession.
First, what is a budget? A budget is most commonly a spreadsheet that outlines a couple of key components. One such component is the amount of money you have to work with; you need a baseline account of all the money you have in your possession for a specified timeframe. The next component is expenses which can be broken down into different categories, but for the moment we will assume it is just needs and wants.
The use of your spreadsheet is to lay out each of your expenses on one side, and how much money you have on the other side. After you have all your information laid out, you will need to take all of your expenses that qualify as needs, as in money that needs to be spent like your bills, and subtract it from the money you have. The amount of money you have left can then either be put aside and saved, or spent on items you want, like that new Lego set that came out.
The underlying goal is to track how much you have to work with, how much of that money needs to be allocated to necessary expenses and how much you can save and use for other items you may want. By doing this, you can understand where your money is coming from and where it is ending up. Knowing where your money is going is powerful and is how you can take control of your finances.
Budgets are imperative for financial success, as they help you build and maintain a cushion, as well as set you up to build lasting wealth. When we think of a financially successful individual or company, we would expect they have a good command over where their money goes; in other words, we would expect that they have a budget.
When it comes to tracking your money, there are a few options you can pick from, starting with the daily tracking, moving to weekly, monthly, quarterly in a year or just annually. My recommendation for most individuals is to keep at least a monthly budget plan in place, although a weekly one would also work.
For starting a budget, I recommend using one of the templates provided on Stanford’s website. Should you use one of their templates, all you will have to do is enter in the information that applies to you and the spreadsheets are set up so everything will automatically calculate for you.
Again, budgeting is important; it is how you understand how much money you have left over to save or to see how much more money you are spending when compared to how much you are taking in. Should you be spending more than you are making, a budget can show you where you may need to cut some expenditures, so you can end each week or month with a net gain.
When you are able to have everything laid out in front of you, it suddenly becomes a little clearer, and you will be able to make more profitable decisions that can lead you towards long term financial security. So, whether you use a budget to see how much longer you need to wait before you can afford something you have always wanted, or you are looking to gain control of your finances, I believe that it is imperative that you know how to make a budget.
Stanford Budget Template Site (I recommend you start with the monthly budget option)- https://mindovermoney.stanford.edu/budget-templates-students
Budgeting Basics Video – https://youtu.be/sVKQn2I4HDM