Tuesday, April 3, 2012

What is a BUDGET?

If the concept of a budget is foreign to you, I've got a good analogy.  A BUDGET is like a DIET.

Think of it like this, a DIET is simply what you eat.  It could be good, bad, or indifferent.

A BUDGET is simply what you spend your money on.  It could be negative, positive, or even.

You could spend less than you earn, more, or the same.  The simplest way to do a DRAFT BUDGET is to start out with the amount of money you make over a known time period (get paid once per month, bi-weekly, weekly).  Then you'd start listing your expenses, needs then wants.  The first DRAFT should not constrain spending.  It should simply be an exercise to capture what you earn and what you spend.

The effort of capturing your expenditures may take a few months, since a lot of costs are factored and paid over longer intervals (weekly groceries, monthly mortgages, semi-annual insurance, annual taxes).

Once you've done this (captured income versus spending), you should be able to see where your money is going.  This is a very important exercise as it sets the groundwork for putting your BUDGET on a DIET!

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