The word “budget” gets a bad rap — probably because it ends up in sentences like “We can't, we're on a budget” all too often. But it's an undeserved rap. A good budget is a tool that enables you to reach your goals, which can (and should) be anything that you truly want to achieve. Create a good budget by making sure yours contains all of the critical parts. Let's go over the anatomy of a good budget.
First and foremost, a good budget has to be realistic. You've got to know how much money you're really bringing in, and how much you're really spending. This is the maybe not-so-fun part, but it's also critical. Paying attention to your money will get you everywhere, even if you don't like what you see at first.
Start by making a list of your income and expenses, and prioritizing them to create a zero-based budget, but don't stop there.
Track your progress as you go, ideally each time you get paid at first. If things don't go as planned, don't beat yourself up or shrug and tell yourself that this was just an unusual month. Make adjustments along the way instead. You'll get more accurate every month, until one day you'll find your budget working for you.
It Helps You Prepare for the Future
A good budget helps you set aside the money you'll need in the future. It should include line items for both long- and short-term savings. For example, you might like to go all-out on gifts. Adding a line item to your budget to spread the costs out throughout the year can be an enormous help.
Likewise, a good budget should include things like saving for car repairs, emergencies, and retirement. Those things are going to happen at some point whether we like it or not, so prepare now and reap the benefits later. You won't feel guilty or be caught short.
It Lets You Say “Yes” to the Things You Care About
A good budget includes more than just bills. Dreaming of traveling the world, sending your kids to college, or buying your first home? Into the budget they go. Or maybe you just have some other hobby that costs a bit of money. Being able to say yes to the things you care about is a huge part of budgeting. All work and no play doesn't just make jack a dull boy, it turns your budget to the dark side. Build in fun money and line items for the things you love to do.
It Wakes You Up When Necessary
If you read the last paragraph and snorted, or felt depressed because you don't see how you could possibly do that based on your current situation, this section is for you. A good budget wakes you up to reality. When you're short on funds every month or just squeaking by, it's time to take a look at what you can change.
That may involve taking a look at yourself — if you're resistant to change — or getting an outside perspective if you're just not sure how to give yourself some breathing room. You may need to get out of debt, temporarily cut out some things that you enjoy, find ways to bring in extra money, or all three. Use your budget as a tool to help you identify areas that need to change, or where you might be over-weighted (such as if you've got a big percentage of your spending going to transportation or housing).
It Takes a Whole Lot of Stress Right Out of Your Life
Once you start to see the magic of a good budget, you'll find that a lot of things that used to stress you out about money no longer do.
For example, we used to get stressed out and irritable every time the car insurance came due. It was like an unpleasant surprise that just kept happening. Of course we knew intellectually that it was due every six months, but knowing something and doing something about it are two different things. A good budget does something about it, taking you from stressed to prepared. So get your budget on!