What Are the Goals of a Balanced Budget?

A balanced budget will prevent you from creating a deficit.

A balanced budget matches your income and your expenses exactly. If expenses suddenly rise in one category, then they must be reduced in another category to make up the difference. A balanced budget system may take extra time, but it will help you to gain complete control over your finances.

Avoid Debt

Because you plan your expenses, a balanced budget helps you to avoid debt. It allows you to make a conscious decision of how you want to spend your money. Since a balanced budget does not allow you to overspend, it will prevent you from using your credit cards in emergencies. As part of your balanced budget program you should have an emergency fund set aside to cover unexpected expenses such as car repairs and medical bills.

Build Wealth

A balanced budget will help you to build wealth if you have a savings and investing category as part of your budget. You can begin to build wealth effectively once you are free from all consumer debt. A balanced budget will protect the savings you do have, because you will not need to dip into them to cover expenses each month. If you are pulling on a reserve each month, then your budget is not balanced and you will need to evaluate your finances and make changes.

Control Spending

A balanced budget will put a control on impulse spending. Since every dollar is assigned a specific function at the beginning of the month, you do not have extra money to spend on a whim. Track your budget each night to see where you currently stand so you will stop spending when you run out of money in a specific category. A balanced budget should include all of the spending you normally have during the month.

Making a Balanced Budget Work

A balanced budget has the outgoing categories exactly equal your income. Once you have written out your budget you will need to track your expenses each day. If you need extra money in one category you can transfer it from another category, but the overall comparison of income and expenses must remain equal. Setting aside money into an emergency fund, or a savings account with a specific purpose, will allow you to cover emergencies and save for your vacations or other big expenses that happen annually.

References

• CNN Money: Making a Budget
• MSN Money: Build Your First Budget