Why Have a Monthly Budget?

Budget for today. Plan for tomorrow.

Creating and following a personal budget is essential to managing your money and planning for your financial future. When you have a limited amount of money available to pay your bills and provide for your living expenses, a monthly budget will help you take control of your finances. It will also give you the freedom and ability to achieve personal financial goals.

Examine Spending Habits

The worse your spending habits are, the more you need a monthly budget to help you take control of your personal finances. Do you spend money impulsively? Do you use credit cards to purchase everyday items, such as groceries or gas? These are two examples of spending habits that will likely keep you insolvent.

Are you aware of every dollar you spend? Do you put off buying something you really want until it goes on sale? Do you save receipts and track your spending? Do you pay off your credit cards on a monthly basis? If so, good for you. These are all examples of good spending habits. Take an honest look at your spending habits. Identify the goods ones and the bad ones. Your monthly budget will help you eliminate bad habits and build or reinforce good habits.

Set Short- and Long-Term Priorities

Think about what is most important to you when budgeting.

If your income is very limited, your first priority may be to pay for living expenses and have a little left over until you get your next paycheck. For those who earn bigger paychecks, the first priority may be to spend only the money you have and stop using credit cards. These are short-term goals that take your immediate needs for food and shelter into consideration.

Identify and prioritize your long-term goals, which may include travel, retirement, education or major purchases, such as a new car or becoming a homeowner. For example, if you dream about a trip to Paris but your car is constantly in need of major repairs, saving for a down payment on a new car should take priority over the trip.

Create Your Budget

This may seem like a daunting task, but there are tools available to help you develop your budget. Using spreadsheets makes quick work of listing your income and expenses. Itemize each necessary monthly expense. This will tell you how much money you need. How does the total for your expenses compare with your income? If you have $3,000 in monthly income but your monthly expenses total $3,500, you have to find a way to earn some additional income or a way to reduce your expenses. Creating your budget will tell you exactly where you stand financially and what adjustments you need to make.

Once you have the first draft of your budget, the next step is to track your monthly performance. This can be done manually, with spreadsheets or bookkeeping software. To get control of your finances, use the tools you have available. Don't make unnecessary purchases.

Control Spending

Is your money going down the drain?

Holding on to money can be like trying to capture water in the palm of your hand. Money has a way of slipping through your fingers. There are unexpected events, such as illness or injury, that can wreak havoc with anybody's budget. There are expenses that constantly drain your income, such as taxes, fees and interest. The only way to counterbalance the elusive aspects of money is mindfulness. You must be constantly mindful of everything you spend and aware of all the outside forces that can dip into your income with or without notice. Creating and tracking your monthly budget will increase your mindfulness and help you gain control over your spending.

Benefits of Managing Your Money

Your monthly budget puts you on the path to financial freedom.

The obvious benefit of budgeting and managing your money is the control you gain over your financial life. In addition, you will find this single benefit spills over into unexpected areas of your life. You can't have control of your life if you don't have control of your money. Once you gain that control, you will feel empowered to take your success to the next level. This creates a new kind of focus, which can enable you to identify your life goals and outline how you plan to achieve those goals. Financial freedom will do wonders for your peace of mind. Your monthly budget can help you work toward financial freedom regardless of your income level.

Resources

• CNNMoney: Ideal Budget
• Spreadsheet 123: Excel Budget Planning Templates
• Economy Watch: Types of Budgets