Do You Budget?

Most likely the answer to this question is – no. Most people in the world don’t have a budget – they may spend less than they make but they don’t have a budget to track it. Of course spending less than you make is essential to the health of your personal finances – but keeping a budget is more important than you might think.

A budget is important because it can make you very aware of where all your money is going. If you are spending too much in one area of your life a budget will make this very clear. A budget will also help you figure-out exactly how much money you can put into savings and investments each month. There are a few bucket’s you’ll want to put your extra money into and I’d address this in the following order:

1) Emergency Fund
This should be the Pay Yourself First category and must be contributed to every month. Even if you can only put $25/month in your emergency fund – do it! In an emergency you’ll be glad you did.

2) Credit Cards
If you have any credit card debt you should be throwing any extra money you have into these. This is not only money you owe but money you are paying interest on! Pay as much above the minimum as you can afford each month to get rid of this debt as quickly as possible.

3) Savings/Investment/Retirement Account
If you can try to put some money into savings or an investment account each month. The goal here is to grow your money over time.

So here’s the challenge. How do you know how much money you can put towards each of these three? Easy – make a budget. By making a budget you can specify exactly what your income is, what your expenses are, and how much money you have left-over in the end. You’ll then take this left-over money and divide it between these three areas leaving a bit of a buffer in case things don’t go according to plan.

Now here is one essential item to really make your budget effective – make a section in your budget labeled “Unplanned Expenses” and every time you spend money that you didn’t budget for list it in this category. At the end of the month you will be able to plainly see exactly how much money you are spending outside of your budget. Being aware of these additional expenditures can really help you spend your money more effectively and ensure that you have more left-over for things like your emergency fund and paying-off those pesky credit cards.

So make today the day! Make a budget and begin planning for your financial future!