Understanding what a budget is

A picture of an example of a budget.

Big misconception about a budget

There is usually a big misconception about a budget. Some feel that it is too tedious to live by a budget and that it stifles joy in living. The trouble usually lies in the fact that they do not know what a budget is. They think it is a mere money record keeping. Not at all!"

Some people do keep track of every cent they spend, only to find that they still cannot make ends meet. But they are not budgeting.

A budget is essentially a matter of planning, not just record keeping.

It is a plan for distributing income so as to give you and every member of you the utmost satisfaction from money spent.

It tells you where your money should go instead of wondering where it went. It is a device to help you fit your spending to your life’s goal and purpose.

Little wonder a budget has been compared to a dam.

A dam holds back the undirected flow of stream in order to turn the waters into channels that supply power generators, so that electric current may be provided now here, now there, as needs arise.

Since a budget does the same thing with flow of income as a dam does with the incoming waters, you ought to find it far more interesting than spending money impulsively.

It safeguards you from the loss of joy caused by financial crisis. There tends to be apprehension rather than joy when there is no money for things really needed.

Besides, providing for one’s needs, financial planning also may make luxuries attainable without the unpleasant feeling that they cannot be afforded.

Neither extravagant or miserliness


A budget copes with both of these problems. It should steer one safely from between the whirlpool of extravagant spending and the rock of miserly grasp."

A budget helps eliminate wasteful spending. It shows you leaks through which too much of your income is draining without significant returns to you.

When leaks of extravagance are identified, one can plug them and divert the streams of cash to something that is truly wanted.

If one depends on impulse buying, one might spend so much money extravagantly that he or she lacks basic needs. With so much credit buying today one can easily go hopelessly bankrupt.

A budget enables a person in debit to pay off his debts from regular income and remedy the situation of borrowing money at high interest rates, which in many instances is flagrant extravagance.

A budget, on the other hand, need not make one a miser and a self-centered person.

No, a budget should be designed to take into account the need for entertainment and showing of hospitality.

Cooperation needed


To get the full benefits of a budget, if the budget is for a family rather than an individual there must be cooperation. Husband and wife must work together."

The wife may be a good financial manager and the husband may turn over to her some responsibility, but the entire load should not rest on one person.

Under the budget system the children can receive their allowances in harmony with the family income and child’s needs.

The children should be told what this allowance is intended to cover and in the course of time be taught the value of drawing up a budget.

Thus the children, by getting financial training early in life, they will be able to avoid being extravagant in their own spending.

In these days of rising prices, inflation, it is practical for the family to have a budget. Hence, family members need to develop the right viewpoint about the family budget.

The family members should not be demanding things and insisting on their own ways. They should be careful to spend their money for necessities first, not for their own luxuries.

With this spirit all members will exercise care to live within the family total income, thus avoid the family going into unnecessary debt.

Use a system you can understand


One easy approach to budgeting is to purchase a budget booklet. These are available in many stores. But usually a ready-made budget booklet requires more record keeping than is necessary."

Hence, it would be better to make up your own budget plans merely using sample budget book as source of ideas rather than as final tool to be used from beginning to end.

Tailor the budget to your needs or the needs of your family, not someone else’s family.

If it is kept simple, it will not be necessary to spend more time than a minute or two to make records of expenses.

You may avoid keeping records of small expenses by making a personal allowance to each member of the family.

No accounting for the use of this allowance is called for, though the individual may wish to keep a personal budget.

There are a number of simplified versions of the budget. For example, the envelope system can be very useful if having a banking account is not feasible.

Each envelope is marked for the purpose it represents, such as “rent”, “food”, “transport” and so forth.

Every pay day the income is distributed among the envelope so that when bills come due the money will be there.

As one spends, no record is kept of expenditures. When a small balance is left in an envelope, it may be transferred to a savings envelop or it may be retained for the next month’s use.

If one envelop is consistently exhausted before the end of a period (say the food envelope), you can either draw from the savings envelop, or if you think food costs have been larger than they should be, you might try to reduce them by careful shopping.

The envelop system as the advantages of simplicity, but one must firmly resist the temptation to borrow from another envelop when convenience so urges.

This will only upset the budget. Furthermore, you may choose to it only for some important categories of expenditures, such as food rather than for all categories.

Thus you may combine features of the envelope system with the checking account system. This will enable you to keep small amounts in envelopes and the rest of the money in the bank.

The envelopes representing larger expenses might contain only a card on which is recorded how much money is in the bank and allotted to that category of expenses.

The simplified systems, though not as comprehensive as a budget book, they may still go far towards a budgetary goal of freedom from financial tension.

 So devise a simplified system that best fits your circumstance.

Conclusion


The word “budget” is anathema to many people, especially debtors who prefer to shun reality. It is easy for one to mistakenly attribute financial woes to a short of funds.

But the reality is that no matter how much you earn, it will never have enough.

The best way to solve to money problems is to have a budget. So you do well to give thought to planning a budget.

Whatever system you use, remember what a budget is. It is a plan for spending, not simply a record of expense.

Planning a budget will tell your money where to go and enable you to live more in harmony with your life goals.

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